Nebius's Hyperscaler Deals Drive Outperformance But Mask Execution and Valuation Risks

What happened

Nebius Group has been promoted for outperforming Nvidia in share price returns over the past year, partly due to announced multi-billion dollar capacity agreements with Microsoft and Meta. These megadeals are intended to boost revenue visibility and credibility in the competitive AI infrastructure market. However, the DeepValue report reveals that despite rapid revenue scaling and positive adjusted EBITDA at the Nebius segment starting in Q2 2025, the company reported a Q3 2025 net loss and has negative interest coverage with elevated leverage. Valuation remains rich at a P/E of around 105, and execution hinges on timely GPU supply, power procurement, and contract ramp-ups, which are significant risks. Investors should critically assess whether recent stock gains are sustainable given these underlying financial and operational challenges.

Implication

The Microsoft and Meta agreements provide a clear revenue pipeline, but they require flawless execution on GPU deployments and site readiness to avoid delays that could impact growth forecasts. Nebius's lofty P/E ratio of over 100 implies the market has priced in optimistic scenarios, leaving minimal margin for error in operational delivery. With $4.8 billion in cash, the company has ample liquidity for expansion, yet persistent losses and a net debt/EBITDA ratio of 6.6x signal ongoing financial strain and reliance on future profitability. Supply chain constraints, such as GPU and HBM availability, pose material risks to capacity build-outs, potentially derailing the anticipated benefits from the hyperscaler partnerships. Monitoring milestones like contract utilization and margin expansion is essential; any setbacks could pressure the stock despite short-term outperformance, reinforcing the need for a disciplined, risk-aware approach.

Thesis delta

The article reinforces Nebius's strategic momentum from hyperscaler deals but does not alter the fundamental investment thesis, which already accounts for these positives while highlighting execution and valuation sensitivities. It emphasizes that recent stock outperformance should not distract from the critical watch items of supply chain management and financial health. The HOLD recommendation remains intact, with any upgrade contingent on demonstrable progress in converting agreements into sustainable profits and improving leverage metrics.