Nebius Faces Scrutiny as $40B Expansion Plan Meets Operational Headwinds

Nebius, the neocloud provider, announced an ambitious $40 billion capital expenditure plan for 2027 during its third-quarter earnings call this Thursday. The figure, which exceeded Wall Street expectations, underscores the company's aggressive strategy to scale its AI compute capacity. However, the plan relies heavily on a financing model that leverages future customer payments and asset-backed loans to cover construction costs. This strategy is now facing scrutiny as the company navigates project delays and shifting sentiment from its largest customers, including Microsoft, which has begun to signal a cooling interest in third-party agreements that fail to deliver on schedule.

The financial model hinges on the assumption that Nebius can secure substantial prepayments from high-profile clients like Microsoft and Meta. According to chief revenue officer Marc Boroditsky, these prepayments are intended to cover the costs of building capacity before delivery. CFO Maria Del Dado Alonso Sanchez stated that combined with asset-backed financing, these streams should cover up to 85% of the projected $40 to $45 billion spend for 2027. Yet, the model creates a precarious feedback loop: if projects are delayed, revenue slips, costs mount, and the financing mechanism risks destabilization.

Operational reality is already challenging these projections. A primary example is a data center in Vineland, New Jersey, which is critical to a $19.4 billion contract with Microsoft. The site is currently months behind schedule, with only about half of the planned capacity expected by year-end and the remainder pushed to Q2 2027. According to Andrey Korolenko, the company's chief product and infrastructure officer, the delay stems from the third-party operator, DataOne, winding down temporary power generation faster than anticipated to transition to fuel cells. This transition followed regulatory fines and noise complaints regarding unauthorized natural gas generators at the site.

The implications of these delays are significant for Nebius’s capital structure. Under the terms of its contract, Microsoft has the right to terminate services if deadlines are missed and no alternative capacity is provided, and the agreement includes penalties for late delivery. While Nebius maintains that Microsoft is part of the planning process, the tech giant is reportedly tightening its oversight. Bloomberg recently reported that Microsoft is scrutinizing third-party projects and questioning the value of new agreements, having already pulled back from other partners like Nscale due to similar power and timing issues.

Nebius contends that its internal development projects are progressing on time or ahead of schedule and will supply the majority of new capacity starting in 2027. Despite this, the market reacted sharply to the company's quarterly results, with shares falling 17% on Thursday. The company also lowered its 2026 revenue forecast by $200 million to $3 billion, citing the specific delays at third-party sites. With $7.4 billion in cash on hand, Nebius is betting that its scale and customer demand will outpace the operational friction currently plaguing its third-party infrastructure partners.