Nebius Stock: The Bull Case, the Bear Case, and My Call Before Nov. 12

When I last reported on Nebius Group (NBIS -6.67%) in mid-October, the stock price was around $165, and I was still considering a potential purchase. However, the shares have been declining since then, and as of today, they are trading near $152, a drop of approximately 47% from their June 18 record of $286.69. Two significant developments have occurred during this period.

Firstly, Nebius secured a $3.5 billion financing facility from Citigroup on October 22. Secondly, the company is set to release its third-quarter results on Thursday, November 12, prior to the opening bell.

The most compelling argument in favor of investing in Nebius is its revenue target. The management anticipates achieving an annualized run-rate revenue of $7 billion to $9 billion by the end of 2026. This target is derived by multiplying the revenue from the last month of AI cloud services for the previous quarter by 12. As of June, the company's revenue stood at $3.0 billion, a substantial increase from $1.25 billion at the end of 2025.

The growth rate has been impressive, with a 54% increase in run-rate revenue from March 2025 to June 2025, followed by a 56% rise to $3.0 billion by the end of June 2025. Moreover, second-quarter revenue surged by 454% year-over-year. If Nebius can consistently achieve this growth rate, it could potentially reach the lower end of its revenue target by the end of 2026.

Additionally, the company's pricing strategy appears promising. In the second quarter, Nebius signed deals with an average annual contract value of over $20 million per megawatt of capacity, compared to around $12 million across its 2026 base. These contracts are primarily for capacity being delivered later in the year, which could lead to improved revenue in 2027.

The market seems to recognize Nebius's potential, as the stock trades at approximately 5.5 times its annualized revenue target. If the company successfully meets its revenue goals, this valuation might be considered reasonable. However, the path to achieving this growth comes with significant costs. Nebius expects to invest $20 billion to $25 billion in capital expenditures this year, with $8.1 billion spent on equipment and other capital purchases in the first half of the year.

This leaves a substantial $12 billion to $17 billion to be spent in just six months. The company has largely funded this expansion through external financing, including a share sale in the second quarter at an average price of around $224, raising around $5.75 billion. Additionally, the new $3.5 billion facility from Citigroup is valid for only 364 days, necessitating its repayment or replacement within a year.

While customer prepayments provide some relief, with the stock at $152, additional share sales could lead to greater dilution of existing shareholder value. Furthermore, the revenue is highly concentrated, with three customers accounting for 59% of second-quarter revenue, and Microsoft alone holding a contract worth up to $19.4 billion.

As a result, any increase in share price might lead to further dilution for current shareholders. The company's performance is also highly dependent on the success of its upcoming third-quarter report. If the company can deliver a revenue figure close to the midpoint of its revenue target, around $4.6 billion, it would be well-positioned to meet its low-end revenue target for 2026.

However, any shortfall in this figure could jeopardize the company's ability to reach its year-end revenue goal. As of now, my recommendation is to hold off on buying the stock until the third-quarter results are released. Nebius has demonstrated remarkable growth, and I believe that if the company meets its revenue targets, the stock might appear undervalued in hindsight.

However, waiting for the report could potentially mean paying a higher price if the quarter is strong, and I am willing to accept this risk given the company's promising outlook.