Nebius' Microsoft Deal: A Game-Changer or Overpriced Optimism?

The recent $17.4 billion AI infrastructure deal between Nebius Group (NASDAQ: NBIS) and Microsoft has ignited a frenzy of speculation about the company's valuation and strategic potential. For investors, the question looms: Is Nebius' meteoric rise a well-justified bet on the future of AI infrastructure, or is the market overhyping a partnership that may not deliver on its lofty promises?

Strategic Momentum: A Validated Position in the AI Arms Race

Nebius' partnership with Microsoft is undeniably transformative. By securing a multi-year contract to supply GPU infrastructure from its Vineland, New Jersey data center—starting in 2025—Nebius has positioned itself as a critical player in addressing Microsoft's AI capacity shortagesNebius announces multi-billion dollar agreement with Microsoft for AI infrastructure^[1]. This deal, which could expand to $19.4 billion if additional terms are met, validates Nebius' technical capabilities and aligns with its strategic pivot toward becoming a European AI infrastructure leaderNebius Group: My Update On Avride's Fair Value^[2].

The partnership also underscores a broader industry trend: hyperscalers like Microsoft are increasingly relying on specialized infrastructure providers to meet surging demand for AI compute power. Nebius' ability to leverage Microsoft's credit profile to secure favorable debt terms for capital expenditures further amplifies its growth potentialNebius Q2 2025: ARR Rises 73% QoQ, Why We're Still Holding^[3]. As CEO Arkady Volozh noted, the deal enables “aggressive expansion” in 2026 and beyondNebius Group N.V. (NASDAQ: NBIS)^[4].

Valuation Realism: A Tale of Two Multiples

The real test, however, lies in whether Nebius' valuation can justify its strategic momentum. As of September 2025, Nebius trades at an enterprise value (EV)-to-revenue multiple of 41.4x and an EV-to-EBITDA multiple of -130.5xNebius Group - Public Comps and Valuation Multiples^[5]. These figures starkly contrast with industry benchmarks. For context, CoreWeave—a peer in the AI infrastructure space—commands a 12x revenue multiple despite a 2024 revenue of $1.9 billionCoreWeave revenue, valuation & growth rate | Sacra^[6]. The Cloud 100's average valuation multiple has also contracted to 20x, reflecting a 41% decline from recent peaksThe Cloud 100 Benchmarks Report 2025^[7].

Nebius' valuation optimism hinges on projected growth. A Reddit user estimated the company could hit $63 billion in value by 2027 using a 5x ARR multiple and $11.8 billion in annual recurring revenue (ARR)Nebius Stock Valuation^[8]. While ambitious, this assumes Nebius meets its raised 2025 ARR guidance of $900 million–$1.1 billion—a target it's on track to achieve given its Q2 2025 results (73% sequential ARR growth to $430 million)Nebius Q2 2025: ARR Rises 73% QoQ, Why We're Still Holding^[9]. However, applying a 5x multiple to ARR—a metric more common in SaaS than infrastructure—is arguably optimistic for a company with negative EBITDA and heavy capital expenditures.

Competitor Analysis: CoreWeave and Lambda Labs as Barometers

To assess Nebius' valuation realism, it's instructive to compare it with competitors like CoreWeave and Lambda Labs. CoreWeave's $23 billion valuation (as of 2024) is supported by a 12x revenue multiple and a $1.9 billion revenue base, bolstered by its Microsoft contract and NVIDIA partnershipsTop 20 AI Chip Makers: NVIDIA & Its Competitors^[10]. Lambda Labs, meanwhile, offers competitive pricing but lacks access to high-end GPU clusters, limiting its scalabilityTop 20 AI Chip Makers: NVIDIA & Its Competitors^[11].

Nebius' advantage lies in its Microsoft partnership and European expansion plans, but its valuation multiples remain disconnected from peers. For instance, CoreWeave's 12x multiple implies a revenue-based value of ~$13.2 billion for Nebius at its 2025 ARR guidance midpoint ($1 billion)—a fraction of the $63 billion Reddit projectionCoreWeave revenue, valuation & growth rate | Sacra^[12]. This discrepancy suggests the market is pricing in not just near-term growth but also speculative bets on long-term dominance in AI infrastructure.

Risks and Realities

The primary risk for Nebius is execution. While the Microsoft deal provides a revenue floor, the company must deliver on its infrastructure commitments without cost overruns. Financing via secured debt backed by Microsoft's credit is a smart move, but it exposes Nebius to refinancing risks if market conditions deteriorateNebius announces multi-billion dollar agreement with Microsoft for AI infrastructure^[13]. Additionally, the AI infrastructure market is highly competitive, with hyperscalers like AWS and Google Cloud potentially undercutting specialized providers like Nebius in the long term.

Another concern is the disconnect between Nebius' current multiples and its financials. With an EV/EBITDA of -130.5x, the company's valuation is predicated entirely on future cash flows—a common feature of growth stocks but one that leaves little margin for errorNebius Group - Public Comps and Valuation Multiples^[14].

Conclusion: A High-Stakes Bet on the AI Future

Nebius' Microsoft deal is undeniably a game-changer in terms of strategic momentum. It has secured a critical role in Microsoft's AI infrastructure ecosystem and demonstrated the ability to scale rapidly. However, the valuation remains a contentious issue. While the company's projected ARR growth and industry tailwinds are compelling, the current multiples appear stretched relative to peers and traditional infrastructure valuation metrics.

For investors, the key takeaway is this: Nebius is not a traditional SaaS or infrastructure play. Its valuation reflects a hybrid of both, with the optimism of the former and the capital intensity of the latter. If Nebius can execute on its expansion plans and maintain its technological edge, the Microsoft deal could indeed justify its premium. But if it falters—even slightly—the stock may face a harsh reckoning. In the AI arms race, momentum is powerful, but realism is what separates winners from overhyped casualties.