Nebius: more than meets the eye

There is quite some debate going on around whether Nebius (NBIS) is a “worse Iren" because of lower hardware margins or a “better CoreWeave” because of their software capabilities.

In this article, I will share my take as a NBIS investor, focused on a number of important nuances about NBIS that I believe are important differentiators in the AI infrastructure market.

1 - Two timelines

To start off, it is important to realized that Nebius is running two synchronized timelines:

• Today (2025 to 2027): primarily focused on bare metal infrastructure as a funding machine
• Tomorrow (2027+): become the primary PaaS (Platform as a Service) for the enterprise AI market. The hardware profits are simply the fuel to build the software moat

2 - Is NBIS a bare metal player?

The mega deals with Microsoft ($17.4B) and Meta ($3B) are the headline stories for NBIS. These are pure capacity supply agreements. The hyperscalers are renting “bare metal”: dedicated racks of NVIDIA GPUs to run their own internal software stacks.

If you only look at the current revenue breakdown, $NBIS is a bare metal player. But that is not the full picture.

3 - The long term vision

An interview with Roman Chernin (Co founder) gives the critical context for why they are doing these massive infrastructure deals. He sees NBIS as two distinct businesses:

1. Data centers: large bare metal deployments ($MSFT and $META)
2. Cloud and AI software stack: the high margin future

4 - The “funding machine” thesis

Right now, AI demand outpaces supply. NBIS is using this imbalance as a funding mechanism to build its software platform.

As Chernin puts it, $NBIS is “stacking growth curves”:

• Wave 1: pure AI infrastructure (building right now)
• Wave 2: cloud and AI software for SMBs and startups (building right now)
• Wave 3: full stack for tech savvy enterprises
• Wave 4: full stack for classical (late majority) enterprises

The goal is not just to rent chips. It is to provide the “Lego blocks for developers who build on AI”. While everyone is digging for gold (building LLMs), NBIS is building the platform that lets them do so, focusing on security, data management, orchestration and the tooling that allows companies to actually use those models at scale.

5 - Validation beyond the hype

We are already seeing proof that this software vision is gaining traction:

• Notable names like Shopfiy and Cloudflare are, unlike Microsoft, not just renting compute. They are using the NBIS AI Cloud platform for fine tuning and “burst” training.
• Why this matters: it proves NBIS is not just a landlord for NVIDIA. They have a working software stack that sophisticated engineering teams are willing to use.

The long term bet is that NBIS uses the MSFT and META cash to subsidize the growth of the high margin enterprise segment.

6 - Deep dive into the numbers

The crucial question is whether these deals are bringing in actual free cash flow. First the facts: in Q3 2025, the Core AI business hit a 19% adjusted EBITDA margin, with management guiding for 30%+ by 2027.

However, there is a structural drag here. NBIS is leasing the shell of its massive Vineland, NJ facility (through a partnership with DataOne). Lease payments hit margins and effectively cap their EBITDA ceiling compared to peers like Iren who own their real estate. This is at least partially offset by NBIS specialty in building highly efficient data center, but still good to be aware off.

7 - The “engineering edge”

NBIS vertical integration (designing their own racks, servers and cooling) generates a structural cost advantages that directly improve gross margins and EBITDA.

Power efficiency (PUE) advantage

The Industry average PUE is around 1.58 (for every 1 watt of compute, 0.58 watts are wasted on cooling and overhead). Nebius Finland (owned) PUE is around 1.13 which is significantly more efficient resulting in more compute per watt. This directly translates into lower electricity bills and better EBITDA margins.

Density and real estate utilization

• NBIS designs custom “Blackwell ready” racks that handle higher power densities (up to 100kW+ per rack) compared to standard "colo" racks (around 10 to 20kW).
• Impact: they can fit more revenue generating GPUs into the same square footage. Even in a leased facility, this increases revenue per square foot, dilutes the fixed lease cost and boosts margins.

Proprietary hardware reliability

By bypassing OEMs ¹ (like Dell or Supermicro) and designing their own server chassis, they claim around 20% lower total cost of ownership (TCO). Lower hardware failure rates mean less downtime (revenue loss) and lower replacement costs.

In short: there are valid reasons to believe NBIS is capable of translating these deals into meaningful free cash flow generation in the years to come.

8 - The dilution risk

Infrastructure is capital intensive. To finance their infra buildout, in Q3 2025 alone NBIS spent $955.5M on CapEx. However, they only do so with demand secured, ensuring near full utilization of their facilities.

Because they did not secure massive upfront cash prepayments from Microsfot (most likely trading leverage for volume), their first stage of funding is through capital markets and the issuance of debt. In Q3, NBIS filed an “at the market” (ATM) equity program to sell up to 25 million shares.

The second stage of financing this buildout is through their Microsoft and Meta deals. As time progresses and new capacity comes online, we will see revenue from the Microsoft deal start to flow in. This revenue stream is crucial for NBIS to become self sufficient in financing future investment into both infrastructure and their software stack, reducing reliance on capital markets and new debt.

Final thoughts

NBIS is an infrastructure play today, with its software business being built for tomorrow.

The bull case is that they execute the buildout well, generate massive cash flow per share ramping in 2026 and beyond, and successfully layer high margin software services on top of the bare metal infrastructure.

The bear case is that they drown in CapEx and dilution trying to keep up with Microsoft’s demands and never fully reach the software phase of their vision.

So far, management has shown strong execution on both the infra and software side. One point of critique is that I would like management to be more transparent on deal details to give more color on the unit economics at play.

All in all, $NBIS is currently in full on investment mode, taking advantage of the opportunity ahead while building toward their long term vision. As an investor, you have to be comfortable with stock volatility and trust management to execute on that opportunity.

I hope you found this write up helpful from my perspective as a NBIS investor. I am not here to pick sides in IREN, CRWV or NBIS, but simply share my view.

As always, none of this is financial advice. Always do your own due diligence before making an investment decision that fits your own risk tolerance and time horizon.