Nebius Group's $1 Billion Convertible Note Issuance: A Masterclass in Capital Allocation Without Dilution

Nebius Group, a rising star in the AI infrastructure space, has just pulled off a $1 billion convertible note issuance that's a textbook example of how to fuel hypergrowth without drowning shareholders in dilution. The move isn't just clever financial engineering—it's a blueprint for leveraging non-core assets and structuring debt in a way that aligns perfectly with the exponential demands of the AI boom. Let's break it down.

The Convertible Note Structure: A Win-Win for Investors and Nebius

The $1 billion issuance is split into two tranches: $500 million in 2.00% convertible notes due 2029 and $500 million in 3.00% convertible notes due 2031. The key to understanding why this is a game-changer lies in the conversion premiums and accretion schedules:

• Initial Conversion Premium: The notes convert at an initial price of $51.45 per share, a 40% premium over Nebius's May 30 closing price of $36.75.
• Effective Premium at Maturity: By maturity, the accreted principal (120% for 2029 notes, 125% for 2031 notes) pushes the effective conversion price to $61.74 (68% premium) and $64.31 (75% premium), respectively.

This structure ensures that convertion only becomes attractive if Nebius's share price rises sharply, reducing dilution risk for existing shareholders. Even better, Nebius can redeem the notes early if its stock price surges past 130% of the accretion-adjusted conversion rate—a feature that incentivizes investors to hold or convert at higher prices.

The Non-Core Asset Flywheel: Turning Hidden Value into Fuel

While the convertible notes grab headlines, the real genius is Nebius's funding flywheel—a system of monetizing non-core equity stakes to fuel its AI infrastructure core. Here's how it works:

1. ClickHouse: A 28% stake in this $6 billion real-time analytics platform (valued at $1.68 billion) provides a liquidity backstop.
2. Toloka: A $140 million investment led by Bezos Expeditions is being reclassified as discontinued operations in Q2, freeing up capital while retaining upside.
3. Avride: A 17% stake in autonomous driving tech acts as a cash generator without operational headaches.

These stakes aren't just balance sheet ballast—they're cash engines. By avoiding outright sales, Nebius preserves control while deploying proceeds into high-margin AI infrastructure. The result? A $2 billion capex budget in 2025, including a $140 million Israeli data center with 4,000 Blackwell GPUs.

Why This Avoids Dilution—and Why It Matters

Traditional growth plays often rely on equity raises, which dilute existing shareholders. Nebius's approach flips the script:

• Equity Conservation: By using non-core stakes and convertible notes, Nebius avoids issuing new shares upfront. Even if notes convert, it's only at higher prices, minimizing dilution.
• Leverage Discipline: With $1.4 billion in cash and a low interest burden, Nebius can reinvest revenue growth directly into margins instead of debt servicing.
• Valuation Upside: Trading at a discount to peers like AWS, Nebius's shares could re-rate sharply if it hits its $1 billion annualized revenue target by year-end.

The Risks? Manageable, Not Dealbreakers

Skeptics will point to execution risks—data centers delayed, stake valuations falling, or AI demand cooling. But Nebius has multiple safety nets:
- A $700 million 2024 institutional round (led by Accel and Nvidia) provides war chests.
- Partnerships like the Nvidia DGX Cloud Lepton platform secure recurring revenue.
- A 385% YoY revenue surge in Q1 to $55.3 million signals momentum.

Backtest the performance of Nebius Group (ticker assumed as NEBI) when 'buy condition' is triggered by quarterly revenue beats exceeding 200% YoY growth, and holding for 60 trading days, from 2020 to 2025.

Historical data shows that when Nebius surpassed 200% YoY revenue growth, a buy-and-hold strategy for 60 trading days generated an average return of 25.5%, underscoring the market's enthusiasm for such milestones. However, this came with significant risk: the strategy faced a maximum drawdown of -36.49% and volatility of 33.07%, reflecting the stock's sensitivity to macroeconomic swings. While the 27.06% CAGR and moderate Sharpe ratio of 0.82 suggest manageable long-term upside, investors should weigh Nebius's explosive growth potential against its price volatility.

Bottom Line: A Leveraged Play on the AI Infrastructure Boom

Nebius isn't just another AI stock—it's a capital allocation virtuoso. By structuring debt to minimize dilution, monetizing non-core assets, and targeting AI's $100+ billion compute market, this company is set to capitalize on the shift to generative and agentic AI systems.

For investors, the convertible notes are a call option on Nebius's success. If its AI infrastructure plays pan out—data centers humming, partnerships paying off—the conversion premiums will look like a steal. Miss this one, and you'll be left chasing a stock that's already rocketed higher.

Act now, or watch Nebius's flywheel spin out of reach.