Nebius Capex Surge to $5B Amplifies Cash Burn and EBITDA Risks

What happened

Nebius Group has lifted its 2025 capital expenditure target to $5 billion, as reported by Zacks Investment Research, signaling an aggressive push to capitalize on AI infrastructure demand. This move follows the company's rapid revenue scaling, driven by multi-billion-dollar capacity agreements with Microsoft and Meta, as noted in the DeepValue report. However, the report highlights that Nebius is already in a precarious financial position, with 9M25 capex at $2.01 billion, negative free cash flow, and leverage metrics like net debt/EBITDA at 6.6x. The increased spending directly undermines management's goal of a slightly EBITDA-positive year-end, raising valid concerns about near-term profitability amid heavy investment cycles. Overall, this development intensifies the valuation and execution risks previously identified, where the stock trades at ~108x P/E on a ~$26 billion market cap despite persistent losses.

Implication

The $5 billion capex spike underscores Nebius's aggressive growth strategy but exacerbates its negative free cash flow and leverage, increasing the likelihood of future equity raises or debt accumulation that could dilute shareholders. With group EBITDA still negative and the company targeting a slim year-end profit, this capex surge may delay or jeopardize that goal, risking disappointment against inflated market expectations. Given the stock's ~325% 12-month rise and high multiples, any shortfall in utilization from new capacity or pricing pressure from competitors could trigger a sharp multiple compression. Monitoring key items like Microsoft/Meta contract ramp and cash burn trajectory becomes even more critical, but current data suggests limited margin of safety. Therefore, existing holders should consider trimming positions, while new capital remains unattractive until evidence of sustainable profitability emerges.

Thesis delta

The capex increase does not shift the core sell thesis but strengthens it by confirming the aggressive capital intensity and cash burn risks highlighted in the DeepValue report. It raises the urgency for investors to scrutinize Nebius's path to positive EBITDA and free cash flow, as any delays could exacerbate valuation overhangs. While the AI demand backdrop remains supportive, this move heightens execution and financial risks, reinforcing the recommendation to underweight or avoid the stock at current levels.