Same business as CoreWeave, opposite way of paying for it

Today, I'm digging into Nebius Group (NBIS).

This is a repeat. I covered this company in issue #104 under its old name, Yandex N.V.

For most of its life, Yandex was basically the Google, Uber, and Amazon of Russia rolled into one. It ran the country's largest search engine and lived off search ads, then added ride-hailing, food delivery, e-commerce, maps, music streaming, and its own cloud. It did nearly $5B of revenue in 2021, almost all of it in Russia. By the time I wrote about it, the company had already sold every Russian business, kept a data center in Finland, the cash from the sale, and a team of engineers outside Russia, and renamed itself Nebius.

Back then it was a ~$19.6B company with ~$363M of trailing revenue, and only about half of that came from the AI cloud. My conclusion was that forced pivots can work, but only if you reset the product, the capital, and the story all at once.

Nebius did all three. Revenue is up 3.7x since that issue, the AI cloud is now 98% of the business, and the market cap has more than doubled. Let’s look at then vs. now.

Nebius designs its own servers, builds or leases the data centers, and sells computing time to AI labs and big tech companies, from short-term rentals up to multi-year contracts. Microsoft and Meta are the anchor customers.

They're very similar to CoreWeave, which I reviewed a couple of days ago and sent to you. More on that in a bit.

A few things that stood out to me:

• ARR went from $430M in June 2025 to $3.0B in June 2026. Q2 revenue was $582M, up 454% from a year earlier, and management reaffirmed 2026 guidance of $3.0B to $3.4B in revenue and $7B to $9B of exit ARR.

• Nebius is spending way ahead of its revenue. CapEx over the last twelve months was about $11.1B, or 8.2x revenue. 2026 CapEx is guided to $20B to $25B.

• It's paying for most of that with shareholders' money and customers' money, not lenders'. Net debt is about $2.0B. Nebius raised $2.8B selling stock in Q2, took $2B from Nvidia, and expects more than $9B of customer prepayments this year. About 70% of Q2 deals came with prepayments covering 50% to 60% of the CapEx behind them.

• Two customers, Microsoft (up to $19.4B) and Meta (up to $27B), are a big chunk of the $40B-plus in customer commitments. Most of Meta's deal doesn't start until 2027, and up to $15B of it is optional.

• The stock fell 27% in October alongside CoreWeave as AI funding fears spread. It's still up about 8.6x since trading resumed on Nasdaq in October 2024.

• Free cash flow is still deeply negative. Last time I said free cash flow should be the North Star for a business like this. In H1 2026, Nebius generated $4.5B of operating cash flow and spent $8.1B on CapEx.

• The demand for compute appears to be very strong, as I talked about in the CoreWeave report. Nebius’s per-megawatt pricing is rising. Long contracts yield $20M to $25M per MW, and recent auctions cleared 15% above prior Blackwell highs.

Once again, I wrote about CoreWeave the other day, which borrows against its contracts and now has bonds trading near 80 cents. And a few weeks ago I wrote about Powell Industries, which gets customers to pay up front for switchgear.

Nebius sells the same thing as CoreWeave and gets the same score on my competitive framework, but it finances itself much more like Powell. Its operating cash flow was $2.3B last quarter on $582M of revenue, because customers paid in advance for capacity that doesn't exist yet.

The key takeaway here for me is that when demand is through the roof, ask customers to fund the build. Prepayments can help mitigate a lot of the interest rate risk that CoreWeave is exposed to.

the big thing to watch going forward is whether CoreWeave will be able to demand higher margins because they are taking on more of the financing risk. If not, ouch, that sucks for them!

With that, I'll see you earlynext week!

Nick

TL;DR

• Nebius is the former Yandex N.V., now an Amsterdam-based AI cloud that rents Nvidia GPU capacity to AI labs, hyperscalers, and developers.

• The Nebius AI cloud was 98% of Q2 2026 revenue. The rest is robotaxi company Avride and coding bootcamp TripleTen, plus stakes in ClickHouse and Toloka.

• TTM revenue is $1.35B. Q2 revenue grew 454%, ARR hit $3.0B, and the AI cloud posted a 50% adjusted EBITDA margin.

• TTM operating margin is -49% and CapEx is 8.2x revenue, but net debt is only ~$2.0B with ~$8B of cash. The stock is up 65% over the past year, versus CoreWeave (-51%) and Oracle (-53%).

• Since my last issue (#104), revenue is up 3.7x, gross margin rose from ~59% to ~75%, and the market cap went from ~$19.6B to ~$47B.

• Operator lesson: in a capital-heavy business, the best investor is your customer.

Then vs. Now

What played out:

• The pivot was total. In FY2024, TripleTen and Toloka were ~44% of revenue. Toloka has been deconsolidated, and everything outside the AI cloud is now ~2%.

• Big customers validated the business. I wrote that one whale unlocks many smaller deals. Microsoft came in September 2025, then Meta, then four $1B-plus deals last quarter with AI labs like Reflection and Cohere.

• Margins improved and losses still grew. Revenue grew 3.7x while the operating loss grew ~22%. That's a lot better, but it isn't profitable.

What I'm still watching:

• Credit access. I wrote that eager lenders disappear when markets tighten. This month that happened to CoreWeave, whose bonds fell to ~80 cents. Nebius mostly avoided it by raising equity and taking prepayments, but it just closed its first asset-backed loan and says more debt is coming.

• Free cash flow. I called it the North Star for a business like this. It's still deeply negative: H1 2026 operating cash flow of $4.5B against $8.1B of CapEx.

• Dilution. I flagged it last time, and it happened. Weighted shares went from ~240M to ~280M in a year.

The 30,000-Foot View

Nebius is a "neocloud," a cloud provider built only for AI. Amazon, Microsoft, and Google run clouds that do everything. Nebius does one thing: large clusters of the newest Nvidia GPUs, networked together, with software on top for training models and running them for users.

It sells capacity three ways:

• Big multi-year contracts. Microsoft, Meta, and four new deals in Q2 averaging over $1B each, with customers like Reflection and Cohere. These pay about $20M to $25M per megawatt per year.

• Short-term capacity of up to six months, which pays $40M to $50M per megawatt. Nebius has started auctioning this capacity, and the most recent auction cleared 15% above its highest prior price for Nvidia Blackwell chips.

• Self-serve cloud and inference for developers and startups, who rent by the hour or pay per token.

The difference from CoreWeave is ownership. CoreWeave mostly leases its data centers. Nebius says owned sites now make up more than 75% of its contracted power, including its original data center in Mäntsälä, Finland, a campus in Vineland, New Jersey, and a planned 1.2 GW campus in Pennsylvania. It also designs its own servers and racks, a habit left over from 25 years of running Yandex's search engine.

Revenue mix (Q2 2026):

• Nebius AI cloud: ~98%

• Avride, TripleTen, and other: ~2%

Key Stats

• Market cap: ~$47B

• TTM revenue: $1.35B

• TTM gross margin: 74.5% (before depreciation)

• ARR: $3.0B at June 30, 2026

• Customer commitments: $40B+

• Contracted power: 5 GW target by year-end 2026

• Cash: ~$8.0B at June 30, 2026

• 1Y total return: +64.5%

• Employees: ~1,543

• Industry: AI cloud infrastructure

Company History

• 1990 to 1997: Arkady Volozh and Ilya Segalovich build Russian-language search software in Moscow. The Yandex search engine launches in September 1997.

• May 2011: Yandex N.V. (a Dutch holding company) IPOs on Nasdaq, raising about $1.3B.

• 2014 to 2021: Yandex becomes Russia's Google, Uber, Amazon, and Spotify rolled into one, building search, ride-hailing, food delivery, e-commerce, and its own data centers, including one in Finland.

• February 2022: Russia invades Ukraine. Nasdaq halts trading in Yandex. Volozh is sanctioned by the EU in June and steps down.

• February 2024: Yandex N.V. signs a binding agreement to sell all of its Russian businesses.

• July 2024: The sale closes. A group of Russian investors pays about $5.4B, as $2.8B in cash plus 162.5M of Yandex N.V.'s own shares. Volozh returns as CEO, the EU having lifted his sanctions. The company keeps the AI cloud, Toloka, TripleTen, Avride, and a stake in ClickHouse.

• August 2024: Renames itself Nebius Group N.V.

• October 21, 2024: Trading resumes on Nasdaq under NBIS. The stock closes at about $20.

• December 2024: Raises $700M from Accel, Nvidia, and accounts managed by Orbis Investments.

• May 2025: Bezos Expeditions leads an investment in Toloka. Nebius gives up voting control and stops consolidating it.

• September 2025: Signs a $17.4B to $19.4B AI infrastructure deal with Microsoft. The stock goes from $64 to $93 in two days. Raises $4.3B through convertible notes and stock.

• November 2025: Signs a $3B, five-year contract with Meta.

• March 2026: Nvidia invests $2B. Five days later, Meta commits up to $27B over five years: $12B of dedicated capacity starting in early 2027, plus up to $15B of additional capacity.

• May 2026: Raises 2026 CapEx guidance to $20B to $25B and announces the 1.2 GW Pennsylvania campus.

• August 2026: Q2 revenue of $582M, ARR of $3.0B, $40B-plus of customer commitments, and a 5 GW year-end contracted power target. Raises $2.8B through an at-the-market stock program and closes its first $775M asset-backed loan at SOFR + 2.50%.

• October 2026: Shares fall from $250 on October 6 to $165 on October 16 in a selloff led by CoreWeave's debt concerns. Q3 results are due in the coming weeks.

Show Me the Money

Standout financial features:

• The growth is real, and so far it's coming in at high margins. Revenue went from $92M in 2024 to $530M in 2025 to $1.35B TTM. Gross margin, which excludes depreciation, climbed from 52% to 69% to 75%, and the AI cloud's adjusted EBITDA margin hit 50% in Q2.

• Depreciation is where the profit goes. TTM D&A was about $839M, or 62% of revenue, which is the biggest reason a 75% gross margin turns into a -49% operating margin. Nebius also stretched the useful life of its servers from four years to five this year, which lowers depreciation on paper. Q2's operating loss also includes $116M of one-time stock compensation tied to buying Eigen AI.

• CapEx is running at 8.2x revenue. That's three times CoreWeave's ratio. Nebius is building capacity for revenue that mostly shows up in 2027, and guidance implies H2 2026 revenue of $2.0B to $2.4B, more than double H1.

• Net debt is $2.0B including leases, against $45B at CoreWeave, which has a smaller market cap. Nebius has paid for its buildout mainly with stock, convertible notes, and customer prepayments. Shareholders pay for that in dilution instead of interest. Weighted shares went from about 240M in mid-2025 to 280M in Q2 2026, and 12.3M more are available to sell under the stock program.

• Ignore the bottom line in this one. Net income swung from -$114M in Q1 2025 to +$621M in Q1 2026 to -$190M in Q2 2026. The Q1 2026 profit came from a $781M gain on revaluing equity investments, not from the cloud.

Financial Data

TTM runs through June 30, 2026. FY2023 reflects continuing operations only, with the Russian businesses reported as discontinued. Gross profit excludes depreciation. Net debt includes lease obligations.

Stock Performance

The 5-year number would include the 2022 trading halt and the Yandex years, so it doesn't tell you much about this business. Returns are through the October 21, 2026 close.

1-year head-to-head vs. peers:

All three sell AI compute and all three got hit in October. Nebius is the only one up for the year, and it's also the only one that hasn't loaded up on debt to build. Even so, it's down 40% from its June peak.

The N.O.O.B. Nine: Competitive Powers

The Nerd Out on Business Nine is made up of Hamliton Helmer's famous "7 Powers" of competitive advantage (Scale Economies, Network Economies, Counter-Positioning, Switching Costs, Branding, Cornered Resource, and Process Power) combined with two of my own (Data Flywheel and Distribution Advantage).

Average Score: 2.9/5 - an engineering and power moat that looks a lot like CoreWeave's, with a much stronger balance sheet behind it.

Memorable Marketing

Nebius sells to a few hundred technical buyers, and its marketing works like an engineering firm's: publish prices, show benchmarks, and let big customer names do the talking.

Notable tactics:

• The rebrand reset (2024): Dropping the Yandex name meant a Western buyer evaluating GPU capacity didn't have to start the conversation with Russia. That removed buyer friction more than it added polish.

• The Microsoft announcement (September 2025): A $17.4B to $19.4B contract for a company with less than $150M of quarterly revenue. It doubled as proof of reliability for every other buyer and as the pitch for the $4.3B raise that followed days later.

• Capacity auctions (2026): Instead of quoting a price for short-term capacity, Nebius lets customers bid. The latest auction cleared 15% above its previous best Blackwell pricing, which gives management a public data point that demand is outrunning supply.

• Selling out, out loud: Management repeats that capacity is sold out every quarter. On the Q2 call, Volozh said Nebius could sell its entire 2027 capacity today at current terms.

• Published self-serve pricing: Hourly GPU prices are on the website (an Nvidia H100 is $4.50 an hour on demand), and developers can sign up with a credit card and spin up capacity without talking to sales. That builds a base of smaller customers that can grow into big ones.

• Borrowing Nvidia's credibility (2024 to 2026): Nvidia invested in December 2024 and again with $2B in March 2026, with early access to new chip generations. Being an early Vera Rubin site for Meta reinforces that.

Tactical takeaways:

1. If your customers are few and sophisticated, one big logo does more than any campaign.

2. When demand is higher than supply, auction the scarce part instead of setting the price yourself.

3. Pair a big customer announcement with a capital raise. The announcement is your best pitch to investors.

4. Keep a self-serve tier even when big contracts pay the bills. It's where tomorrow's big customers start.

5. A rebrand should remove friction for buyers, not just look nicer.

AI Uses & Opportunities

Current exposure:

• Nebius is AI infrastructure. Nearly all revenue comes from customers training or running AI models.

• Pricing is moving up, not down. Short-term capacity earns roughly twice the per-megawatt rate of long contracts, and Q2 auction pricing beat prior highs.

• The other businesses are AI bets too: Avride builds self-driving cars and delivery robots, and TripleTen teaches people to code.

Future opportunities:

• Inference over training: running models for millions of users is steadier than one-off training runs and spreads revenue across more customers. Nebius's Token Factory and per-token pricing are aimed here.

• Software on top of the GPUs: managed inference, data tooling, and the Eigen AI acquisition all earn more per dollar of hardware than renting by the hour.

• Smarter capacity allocation: using demand forecasting to decide how much capacity goes to multi-year contracts versus higher-priced short-term auctions.

• Behind-the-meter power: the Bloom Energy fuel cell partnership could let Nebius bring sites online before the grid connection arrives.

• Monetizing the stakes: ClickHouse was reportedly valued at about $15B in January 2026. Selling part of that stake would fund buildout without new shares.

Bumps in the Road

• Dilution. Nebius avoids debt by selling stock, and shareholders feel it. Shares are up about 17% in a year, with 12.3M more available to sell and $4.3B of convertible notes that may turn into shares.

• Customer concentration. Microsoft and Meta account for up to $46B of commitments. A pullback by either would hurt, and Meta's $15B tranche is optional.

• Building on schedule. 2026 guidance needs H2 revenue to more than double H1, and the Vineland, New Jersey site is still waiting on final approval for an amended site layout. Every month of delay pushes revenue out while depreciation keeps running.

• Accounting that flatters. Moving servers from four-year to five-year lives lowers depreciation. If Nvidia's yearly chip upgrades make older GPUs worth less, five years could prove optimistic.

• Internal controls. I flagged material weaknesses last time, and they haven't gone away. The FY2025 annual report discloses two. One covers fixed assets, including when depreciation starts on servers and network equipment. The other covers TripleTen's revenue recognition. For a company spending $20B-plus a year on servers, the first one matters. Nebius expects to fix both by the end of 2026.

• Who's in control. The annual report flags the concentration of voting power with founder Arkady Volozh, so outside shareholders don't get much say over how all that money is spent.

• Sector sentiment. Nebius trades with CoreWeave and Oracle. If credit markets keep punishing AI infrastructure, raising money gets more expensive for everyone, even the companies with low debt.

Your Swipe File

• Ask customers to fund the buildout. 70% of Nebius's Q2 deals came with prepayments covering 50% to 60% of the CapEx. If you're making a big capital investment for one customer, ask for a deposit before you buy.

• Sell some capacity long and some short. Long contracts pay the bills and secure financing. Short-term capacity earns about twice as much per megawatt (at least currently). Keep a mix so you can capture price spikes without betting everything on them.

• Auction scarce capacity. When you're sold out, letting customers bid tells you what your product is actually worth.

• Don't count on lenders being there when you need them. CoreWeave raised money easily when markets were good and is paying ~15% now. Line up your funding while it's cheap, and make sure some of it doesn't depend on markets at all.