Nebius Group: Is the $17.4B Microsoft Contract a Game Changer for Long-Term Valuation?

In the high-stakes race to dominate AI infrastructure, Nebius Group has just secured a landmark $17.4 billion contract with Microsoft, a deal that could redefine its trajectory in the global cloud computing landscape. This multi-year agreement, spanning five years, positions Nebius as a critical supplier of GPU capacity to Microsoft, with dedicated infrastructure to be delivered from a new data center in Vineland, New Jersey, starting late 2025 according to company announcements. For investors, the question looms: does this contract represent a transformative inflection point for Nebius's valuation, or is it a high-risk bet on a capital-intensive growth strategy?

Strategic Implications: A Credibility Play in the AI Arms Race

The Microsoft deal is more than a revenue generator-it's a strategic validation. By aligning with Microsoft, a tech giant with a $1.5 trillion market cap, Nebius signals its ability to meet the exacting demands of hyperscale clients. This partnership follows a similar $3 billion contract with Meta, further cementing Nebius's role as a key player in the AI infrastructure sector. Together, these deals account for over $20 billion in contracted revenue, with Microsoft's agreement alone expected to accelerate Nebius's AI cloud business growth starting in 2026.

The strategic value extends beyond immediate revenue. By securing long-term contracts with industry leaders, Nebius is positioning itself as a preferred partner for AI workloads, a market projected to grow exponentially as enterprises and hyperscalers race to deploy generative AI capabilities. According to a report by BloombergNEF, global AI infrastructure spending is expected to reach $100 billion by 2027, and Nebius's dual contracts with Microsoft and Meta place it at the forefront of this boom.

Financial Structure: Leveraging Microsoft's Credit to Fuel Growth

Nebius's financing strategy for the Microsoft contract is as innovative as it is ambitious. The company plans to fund its capital expenditures through a combination of cash flow from the deal and secured debt, with the latter backed by Microsoft's strong credit quality. This approach allows Nebius to access favorable financing terms while minimizing reliance on equity dilution-a critical advantage in a capital-intensive industry according to Seeking Alpha.

The debt structure is designed to balance growth and prudence. As of Q3 2025, Nebius holds $4.8 billion in cash, a buffer that provides flexibility to manage short-term expenses while investing in long-term infrastructure. The company's leverage ratio remains shallow, with long-term debt roughly equal to equity and cash, suggesting a disciplined approach to risk management. However, the reliance on asset-backed financing introduces potential vulnerabilities if delivery timelines slip, as Meta's contract includes termination clauses tied to on-time performance.

Revenue Recognition and Growth Projections: A 2026 Catalyst

Revenue recognition for the Microsoft contract will ramp up in 2026, with the first tranche of capacity already delivered and subsequent phases tied to infrastructure deployment in 2026. This timing aligns with Nebius's broader expansion plans, including new data centers in Israel, the UK, and Finland, which aim to reach 2.5 gigawatts of contracted power by 2026.

Financial projections are equally compelling. Analysts estimate Nebius could generate $3.2 billion in revenue and $428.7 million in earnings by 2028, driven by the Microsoft and Meta contracts. However, these forecasts hinge on resolving capacity constraints and supply chain bottlenecks, which currently limit the company's ability to scale at the same pace as demand.

Balance Sheet Strength and Risks: A Double-Edged Sword

While Nebius's $4.8 billion cash reserve provides a strong foundation, its aggressive expansion plans-projected to cost over $5 billion in 2025-raise concerns about liquidity. The company has signaled openness to additional financing, including equity issuance, which could dilute existing shareholders.

The Meta contract also highlights operational risks. If Nebius fails to meet delivery deadlines for the December 2025 and February 2026 tranches, Meta retains the right to terminate the agreement, potentially disrupting cash flow and damaging credibility with other clients.

Valuation Considerations: A High-Conviction Bet

To assess whether the Microsoft contract justifies a re-rating of Nebius's valuation, consider the following metrics:- Revenue Growth: According to Q3 2025 financial results, Nebius's Q3 2025 revenue surged 355% year-over-year to $146.1 million, driven by infrastructure operations.- Profitability Path: While the company reported a widened adjusted EBITDA loss in Q3 2025, its cash balance and shallow leverage suggest a path to profitability by 2030.- Market Multiples: At a current market cap of $12 billion, Nebius trades at a discount to peers like NVIDIA and AMD, which command valuations exceeding 10x revenue. If the Microsoft contract drives revenue to $7–9 billion by 2026, a 10–15x multiple would imply a $70–$105 billion market cap-a 4–6x upside from current levels.

Conclusion: A Game Changer with Caveats

The $17.4 billion Microsoft contract is undeniably transformative for Nebius, offering a clear pathway to dominate the AI infrastructure sector. However, its long-term valuation depends on executing on aggressive growth plans without compromising financial discipline. For investors, the key risks-capacity constraints, supply chain delays, and potential dilution-must be weighed against the company's strategic positioning in a $100 billion market. If Nebius can deliver on its 2026 targets while maintaining balance sheet strength, this deal could indeed be the catalyst that turns it into a $100 billion AI infrastructure leader.