Nebius's AI Revenue Surge Masks Deep Losses and Capital Intensity, Reinforcing Sell Case

What happened

A Motley Fool article notes Nebius's revenue is taking off as customers flock to its AI services, highlighting strong demand in the AI infrastructure space. However, the DeepValue report reveals that despite explosive revenue growth—Q3 2025 revenue surged 355% year-over-year to $146.1 million—the company posted an operating loss of $130.2 million and negative free cash flow of $1.0 billion in the same quarter. To meet this demand, the article emphasizes that Nebius must heavily invest now and in coming years, which aligns with the report's data showing capex scaled from $14.6 million in 2022 to $807.7 million in 2024, with risks of dilution from equity issuance and contract-backed debt. The report critically assesses that at $98.87 per share, the stock discounts near-flawless execution on Microsoft and Meta contracts, overlooking execution delays, funding overhangs, and persistent profitability challenges. Thus, the growth narrative is tempered by substantial financial risks, supporting the report's POTENTIAL SELL rating with limited upside versus material downside.

Implication

The need for sustained heavy investment, as highlighted in the article, reinforces the report's warning about escalating capex and cash burn, which could force dilutive equity raises or restrictive debt. Revenue growth alone is insufficient to justify the high valuation, given the company's deeply negative EBITDA and free cash flow, indicating poor unit economics despite contract wins. Execution risks, such as delays in reaching 800 MW connected power by end-2026 or changes in hyperscaler demand, could quickly undermine the growth story and stock price. Potential equity issuance from the 25 million-share ATM program or treasury shares may lead to dilution, eroding per-share value without corresponding profitability improvements. Therefore, existing holders should consider trimming positions above $115, while prospective investors should wait for a better entry point near $70 or clearer evidence of sustainable profitability inflection.

Thesis delta

The new article does not shift the core investment thesis but reinforces it by emphasizing the capital-intensive nature of Nebius's growth, which aligns with the report's concerns over funding and execution risks. It underscores that revenue momentum is paired with escalating investment needs, potentially worsening dilution and cash burn, thereby strengthening the POTENTIAL SELL recommendation without altering the underlying analysis.