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Nebius Group (NASDAQ: NBIS) has been on a tear this year, grabbing headlines and investor attention with its pivot to AI infrastructure. Shares are up roughly 350% year-to-date (as of late October 2025), a surge that puts even some of the "Magnificent Seven" tech giants to shame. But let's peel back the layers of hype and look at what the numbers really tell us.

Decoding the Nebius Narrative

The transition from Yandex N.V. to Nebius Group is a masterclass in rebranding. Shedding its Russian internet roots and embracing the AI cloud computing narrative has clearly resonated with investors. Nebius now boasts a multi-billion dollar deal with Microsoft Azure, providing dedicated GPU capacity. That sent the stock soaring – up 200% on the news. Impressive, no doubt. But is this growth sustainable, or are we looking at a classic case of market overreaction?

One analyst points out that much of Nebius's annual recurring revenue (ARR) is now concentrated with a single customer: Microsoft. That's a significant risk. What happens if Microsoft decides to scale back its investment or switch providers? The analyst wonders if Nebius will land deals with other hyperscalers like Amazon Web Services or Google Cloud Platform. A valid concern, and one that management needs to address transparently.

And here's where I get a little skeptical. Nebius reported second-quarter revenue of $105.1 million, up a staggering 625% year-over-year. The company is aiming for a $1 billion ARR run rate. But the devil is always in the details. How much of that revenue is actually recurring, and how much is tied to one-off projects or short-term contracts? I've looked at hundreds of these filings, and this kind of revenue explosion always warrants extra scrutiny.

The Profitability Puzzle

Nebius isn't profitable yet, though it did achieve profitability on adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Adjusted EBITDA, though, is a metric that can sometimes obscure more than it reveals. By stripping out things like interest, taxes, depreciation, and amortization (all very real expenses), it paints a rosier picture than reality.

The company has been aggressively raising capital to fund its expansion, bringing in $1.15 billion in a public offering and $3.16 billion in convertible notes. Building AI data centers is, undeniably, capital intensive. At the end of Q2, Nebius held $1.7 billion in cash. But how long will that last, given their ambitious buildout plans? (They're aiming for 1 gigawatt of cloud computing capacity by next year.) Management needs to provide a detailed capital allocation strategy and a clear timeline for ROI on this infrastructure.

It's also worth noting that Nebius's gross margin is listed as negative 2007.45%. Yes, you read that right. Negative. Now, this figure seems like an obvious data error—a misplaced decimal point, perhaps—but it highlights the importance of verifying even seemingly straightforward data points.

And this is the part of the report that I find genuinely puzzling: The stock is near its all-time high, trading higher than when it was Yandex N.V., yet the underlying financials are… complicated, to put it mildly. The market cap is around $30 billion. Does the current valuation fully reflect the risks associated with customer concentration, capital intensity, and unproven profitability?

The AI Mirage?

Nebius is riding the AI wave, no question. The company offers AI infrastructure as a service, renting out access to Nvidia GPUs through its cloud platform. The AI infrastructure wave is projected to reach $7 trillion over the next five years. The company is in the right place at the right time. But that doesn't automatically translate into investment success.

One analyst called Nebius a "darling of the retail investing community," suggesting it's vulnerable to volatility driven by hype and day traders. I tend to agree. Momentum stocks can deliver spectacular returns, but they can also crash and burn just as quickly. Nebius Group (NASDAQ:NBIS) Trading Down 7.9% - What's Next?

So, What's Actually Under the Hood?

Nebius has a compelling story, and the Microsoft deal is a major win. The shift from Yandex is a smart move. But the stock's meteoric rise seems detached from the underlying financials. Until there's more clarity on profitability, customer diversification, and capital allocation, I'm staying on the sidelines.