Nebius and the AI Cloud Infrastructure Boom: Is the Stock Still a Buy Ahead of Q3 Earnings?

The AI cloud infrastructure sector is in the throes of a capital expenditure (CAPEX) frenzy, with hyperscalers and emerging players racing to secure their share of a market projected to grow exponentially. At the center of this storm is Nebius Group, a high-stakes contender in the AI compute arms race. With a $2 billion CAPEX plan for 2025, a landmark $17.4 billion contract with Microsoft, and a ninefold surge in AI cloud revenue in Q2 2025, Nebius has positioned itself as a disruptor. But as the company races to expand its data centers and GPU capacity, investors must weigh its aggressive growth strategy against razor-thin margins and a fiercely competitive landscape.

The CAPEX Arms Race: Nebius vs. the Hyperscalers

Nebius's 2025 CAPEX plan is a bold bet on the future of AI. The company is deploying new Blackwell GPUs, expanding data centers in New Jersey and Finland, and building two large-scale greenfield sites in the U.S. Yahoo Finance. This spending is part of a broader industry trend: Microsoft alone is allocating over $30 billion in CAPEX for fiscal 2026, while Amazon's AWS reported $33 billion in Q3 2025 revenue, driven by generative AI workloads Nasdaq. CoreWeave, a direct competitor, has similarly ramped up spending, with $2.9 billion in Q2 CAPEX and projections of $2.9–$3.4 billion for Q3 2025 Yahoo Finance.

Nebius's strategy hinges on its ability to execute at scale. The Microsoft contract, which will provide dedicated GPU capacity from a New Jersey data center, is a critical linchpin. According to a Yahoo Finance report, this deal not only funds part of Nebius's CAPEX but also signals confidence in its infrastructure capabilities. However, the company's expansion comes with risks. As stated by Bloomberg, Nebius's operating margin has plummeted to -194.02% as of June 2025, reflecting the capital intensity of its growth model Macrotrends.

Margin Pressures and the Path to Profitability

Nebius's financials tell a story of explosive revenue growth and precarious profitability. While AI cloud revenue surged ninefold year-over-year in Q2 2025, the company's operating margin has swung from a positive 4.38% in March 2023 to a staggering -194.02% in June 2025 Macrotrends. This volatility underscores the challenges of scaling AI infrastructure: upfront costs for hardware, power, and real estate are immense, and margins only improve once utilization rates stabilize.

The company has raised $4.2 billion through public and private offerings to fund its CAPEX, but profitability will depend on sustained demand and efficient execution. As noted by Capacity Global, Nebius's UK deployment of NVIDIA Blackwell Ultra GPUs is a key test case for monetizing high-performance AI workloads. If the company can demonstrate that its infrastructure can deliver consistent returns, it may attract more enterprise clients beyond Microsoft.

Earnings Guidance and Analyst Optimism

Ahead of its Q3 2025 earnings report, Nebius has provided bullish guidance. Management now expects annual recurring revenue (ARR) of $900 million–$1.1 billion by year-end, up from a previous range of $750 million–$1 billion Seeking Alpha. This optimism is tied to the ramp-up of GPU installations at its Vineland, New Jersey site, which is critical to hitting power and revenue targets. Analysts have largely echoed this sentiment. A Seeking Alpha report highlights that Wall Street assigns a "Buy" rating to Nebius, with an average price target of $91.20 and some firms, like Goldman Sachs, raising their targets to $137.

However, the path to profitability remains uncertain. While Nebius's ARR growth is impressive, its operating losses are expected to persist in the near term. As one analyst from BWS Financial noted, the Microsoft contract "significantly de-risked" the company but does not eliminate the need for disciplined cost management BWS Financial.

The Verdict: Buy or Caution?

Nebius is a high-conviction play in the AI infrastructure boom. Its CAPEX-driven expansion and strategic partnerships position it to benefit from the long-term shift toward AI compute, but the company's financials remain a double-edged sword. For investors willing to tolerate short-term margin pressures in exchange for growth, Nebius offers compelling upside. Yet, the aggressive spending and competitive pressures from Microsoft and Amazon mean that execution will be everything.

As the Q3 earnings report approaches, the key metrics to watch are GPU utilization rates, power capacity progress, and ARR growth. If Nebius can demonstrate that its CAPEX is translating into sustainable revenue streams, the stock could see a re-rating. But if the company stumbles in its execution, the risks of overleveraging and margin compression will loom large.

In the end, Nebius is a stock for those who believe in the future of AI-and are prepared to ride the volatility that comes with it.