Nebius Group

The three things that had to be true for a neocloud to work are now filed facts: demand is contracted (Meta up to $27B, Reflection AI >$1B through 2029, contracted power raised to >4GW), the core segment is profitable on an EBITDA basis (45% margin, nearly doubled QoQ), and the capital to build is already in the bank ($9.3B cash, $6.3B raised in Q1 including $2B from NVIDIA).

• The AI cloud segment turned genuinely profitable at the EBITDA line: $174.0M of adjusted EBITDA on $389.7M of revenue, a 45% margin up from 24% one quarter earlier. That is operating leverage arriving on schedule, and management is pointing at 20-30% EBIT margins.
• Demand is contracted, not hoped for. A second Meta agreement of up to $27B, a >$1B Reflection AI deal through 2029 signed after the quarter, contracted power above 3.5GW versus a 3GW year-end target -- and guidance RAISED to >4GW. Pipeline generation was up ~3.5x QoQ.
• NVIDIA is a shareholder, not just a supplier: a $2B equity investment, Exemplar Cloud status on GB300 NVL72 for training, deepened AI-factory and inference-software collaboration, and the first validated Vera Rubin NVL72 rack in the world's early cohort (Mantsala, Finland, Jul 23 2026). Access to the next architecture generation is the binding constraint in this industry, and Nebius is inside the tent.
• The build is shifting to owned capacity -- >75% of contracted power -- with two US gigawatt-scale sites (Pennsylvania 1.2GW, Missouri 1.2GW) plus Finland 310MW, and sites >100MW going from one to seven. Owned capacity is the difference between a reseller's margin and an operator's.
• It is funded ahead of the spend: $9,298.2M of cash at Mar 31, net cash positive by ~$0.85B, $4,778.1M of customer prepayments already collected, $6.3B raised in Q1 at what management calls favourable rates, and an entirely unused 25M-share ATM in reserve.
• Revenue is compounding at a rate that makes the multiple a function of duration, not level: +684% YoY group, +841% in AI cloud, ARR from $1.25B to $1.9B in one quarter against a $7-9B exit-2026 guide.

Strip the accounting presentation and this is a ~21%-margin, free-cash-flow-negative business whose reported profit came from revaluing a ClickHouse stake, whose operating loss WIDENED year over year, whose cash flow depends on $3.2B of customer prepayments, and which extended GPU depreciation lives from four years to five in the very quarter depreciation became its largest cost.

• The '74% gross margin' is an artefact of presentation. Nebius reports no gross-profit line and puts D&A ($212.0M, 53% of revenue) below cost of revenues ($103.8M, 26%). For a business whose product IS depreciating GPUs, the honest figure is $399.0M - $103.8M - $212.0M = 20.9%. Every downstream margin comparison against an asset-light peer built on the 74% number is wrong.
• And the depreciation itself was just made smaller by fiat: effective Q1 2026 Nebius extended server and network equipment useful life from four years to five, applied prospectively. That lowers reported depreciation and flatters every margin line in exactly the quarter the comparison matters.
• GAAP profit was not earned in the business. The +$621.2M net income is dominated by a one-time non-cash $780.6M ClickHouse revaluation gain; the operating loss WIDENED to -$128.0M from -$120.3M, and the company's own adjusted net loss WIDENED 20% to -$100.3M. Interest expense went from zero to $63.7M in a single year.
• Free cash flow is negative even after $3.2B of customer prepayments: $2,258.0M operating cash flow minus $2,472.9M capex = -$214.9M. Excluding the advances, operating cash flow is roughly -$940M and FCF roughly -$3.4B for one quarter. The $4,778.1M of deferred revenue is an obligation to deliver compute, and it is currently the primary source of working capital.
• The capital programme has no disclosed size. Neither the filed release nor the shareholder letter states a FY2026 capex number -- only an intention to raise 'mid-single digits billions' in near-term asset-backed and corporate debt. A build this large with an unquantified budget, against $3.0-3.4B of guided revenue, is a financing-risk profile, not a growth profile.
• Customer concentration is structural: two counterparties (Meta, Microsoft) underwrite the contracted book, and 98% of group revenue is one segment. Reflection AI -- the newest >$1B customer -- is itself a venture-funded startup that separately committed $150M/month to SpaceX through 2029; the credit quality behind the backlog is not investment-grade across the board.
• This refresh has no new financials. The newest reported quarter is four months old and Q2 lands on Aug 12 2026 -- eight days out. The stock fell 33% in four sessions to Jul 29 and then rose 43% in three, so the market itself has no settled view.