Nebius Group N.V. Q3 FY2025 earnings call

Demand and Deals - Q3 demand was very strong with all available capacity sold out. Signed a major deal with Meta for approximately $3 billion over five years and had a previous deal with Microsoft between $17.4 billion and $19.4 billion. - Continues to see strong demand with more large long-term deals expected. ### Capacity Plans - Accelerated capacity plans to meet growing demand. Expect contracted capacity to grow to 2.5 gigawatts by 2026, up from 1 gigawatt previously. Plan to have 800 megawatts to 1 gigawatt of power connected to data centers by end of 2026. ### Product Developments - Released new enterprise-ready cloud platform version 3.0 called Ether and new inference platform Nebius Talking Factory. Building a large pipeline of new software and services to differentiate from other cloud companies. ### Core Business - Main focus on building core AI cloud business with progress with AI-native startups. Annualized run rate revenue for core business at end of September was $551 million.

Q3 group revenue was $146 million, up nearly 355% year over year and 39% quarter over quarter. The core infrastructure business, accounting for nearly 90% of total revenue, grew 400% year over year and 40% sequentially. Adjusted EBITDA margin for the core infrastructure business expanded quarter over quarter to nearly 19%. Annualized run rate revenue for the core business at the end of September was $551 million.

2025 Revenue - Tightened full-year group revenue guidance to $500 million to $550 million range, pacing to midpoint. ### 2026 ARR - Expect annualized run rate revenue of $7 to $9 billion by end of 2026. ### Capital Expenditure - Raised 2025 CapEx guidance from approximately $2 billion to circa $5 billion. ### Microsoft and Meta Revenue - Microsoft deal: 2025 revenue impact minimal, tranches delivered in 2026 with more than half in second half. Meta deal: Deployments to conclude in next three months, mostly at full revenue run rate in 2026.

Capacity Constraints - Capacity remains main bottleneck. Challenges in securing power and supply chain. ### Market Risks - Potential GPU oversupply in coming year, but conservative stage approach to capital spend keeps in good financial position to weather downturn.

Q: Can you tell us more about the new Meta deal? Why did they choose you, and how should we model the deal?

A: This new deal with Meta is approximately $3 billion. Size limited by available capacity. Mega deals important but focus remains on developing own AI cloud. These large contracts provide great sourcing of financing for core AI cloud business.

Q: What exactly is in the $7 to $9 billion ARR target? And is this based on preexisting core business plus Microsoft and Meta?

A: Building blocks include unblocking capacity bottleneck, strong demand from various customers, new capacity and long-term contracts with Microsoft and Meta. More than half of the $7 to $9 billion ARR is already booked.

Q: Can you walk us through the timeline of your infrastructure build-outs for Q4 2025 and 2026? And what gives you confidence that you can reach your 2.5 gigawatts goal for contracted capacity?

A: Ramping up capacity, launching in Israel and UK with capacity presold. Bringing new capacity online in current sites, including New Jersey. Launching new phases in Finland in Q4. In 2026, continuing scaling existing data centers and developing new ones. Confidence comes from strong demand and focus on rapidly building capacity and pipeline.

Q: How should we be thinking about revenue contribution from Microsoft and Meta deals for this year and going forward?

A: Microsoft contract: 2025 revenue impact minimal, tranches delivered in 2026 with more than half in second half. Meta deal: Deployments to conclude in next three months, mostly at full revenue run rate in 2026.

Q: What does the overall demand environment look like in Q4 and into the next year?

A: Demand is accelerating. Pipeline generation expanded 70% quarter on quarter in Q3 with $4 billion in pipeline. High confidence in continuing to expand results and drive ARR growth based on current pipeline.

Q: Incremental ARR in September was around $12 million, down from $180 million the prior quarter and $159 million in March. Why is incremental ARR down?

A: Revenue and ARR dependent on capacity. Capacity has been the bottleneck, but incremental ARR in Q4 expected to be significantly higher as more capacity comes online.

Q: How are you thinking about CapEx, and what is your philosophy on CapEx spending?

A: CapEx breaks into three stages: securing land and power (cheap, ~1% of total), building connected power (~18 - 20% of total), and deploying GPUs (~80% of total). Secure capacity, build as capital allows, and fill GPUs in line with visible demand. In 2026, securing 2.5 gigawatts contract capacity and planning to build 800 to 1 gigawatt connected data centers by end of 2026.

Q: Is it fair to assume that if you get 2.5 gigawatts, this will equate to over $20 billion of revenue? By when do you envisage you could do this and how?

A: Fair to assume, but need to secure power and ability to build. Invest CapEx in building out and deploying GPUs. Can accelerate when needed, not blocked by capacity constraints all the time.

Q: Is it in a situation when you are sold out, is that the same issue? Or is that really an issue with your future growth and differentiation of servicing a broader range of customers?

A: Being sold out is a nice problem. Important to service not only large tech companies but also AI cloud and diverse customers. Building partnerships with startups, software vendors, and enterprises to meet their capacity needs in future, especially with enterprises.

Q: How are you focusing on debt and asset-backed financing for large deals?

A: Actively evaluating range of financing options including asset-backed financing, corporate-level debt, and equity financing. Working on asset-backed debt with attractive terms supported by largest customers' creditworthiness.

Q: Why are you planning to pursue an ATM? You just completed a secondary, and this will result in additional dilution to shareholders.

A: Putting in place an at-the-market equity program for up to 25 million Class A shares to access equity funding efficiently. Program enables ongoing access to equity funding while remaining dilution sensitive for financing future growth opportunities.

Q: How are the early operations of your new UK facility progressing?

A: Progressing very well. Officially launched, capacity coming online in next week or so. Very bullish about opportunities in UK, vibrant AI market, strong VC environment, and government support. See a lot of AI startups and large tech companies establishing presence. Plan to expand capacity in UK overall.

Q: What are your constraints to growing in the near term and medium term to capture more of that demand? And could you also address some of the recent comments on the market around power equipment constraints?

A: Capacity remains main bottleneck. Key challenges in increasing capacity are securing power and supply chain. Addressing these, have expertise in building data centers. Pipeline is strong, focus on growing contract capacity to 2.5 gigawatts.

Q: Any updates on the New Jersey facility?

A: New Jersey facility goes as planned. First tranche handed over to Microsoft, further expansion ongoing.

Q: Are you concerned that we are in an AI bubble, Arkady?

A: Demand is real. In center of AI evolution. Unbalanced demand supply is temporary. Focus on diversified customers, workloads, conservative capital raise, and healthy margins. Believe AI industry will be okay.

Q: How should we think about the lead time between when power is connected to and when it is hooked up to GPUs and generating revenue?

A: From connected power and start of GPU deployment until generating revenue is anywhere from six to twelve weeks. Existing sites can be quicker. Have flexibility in deploying.

Q: Can you update us on your progress with your primary customer segments?

A: Extremely strong demand from core AI business. Added new customers in Q3 like Cursor AI, Black Forest Labs, World Labs. Expanded with existing customers, including Shopify in software vendors, and made strides in healthcare life sciences, physical AI, media and entertainment segments.

Q: Any puts and takes that you can provide on your revised 2025 year-end revenue guidance?

A: Business scaling rapidly. Annualized run rate revenue continues to expand, demonstrating resilience and scalability. Well on track to hit ARR guidance range of $900 million to $1.1 billion by end of 2025 and pave way for 2026 growth.

Q: How is your enterprise initiative ramping up?

A: Made strides with launch of Nebius 3.0 (Aether) with compliance, security certifications, and enterprise-ready functionality. Adding key leaders to sales organization for enterprise software vendors and key verticals. Building foundation for strong 2026 with enterprises.

Q: What is the opportunity around your new launch Token Factory? And does this expand your market or open up new segments?

A: Token Factory gives vertical AI product builders, ISVs, and enterprises platform to build flywheel of applying LLMs in vertical AI use cases at scale. Transforms open-source models into production-ready systems. Expands market by serving broader set of customers including enterprises in inference workloads.

Q: What demand are you seeing for the new Blackwell generation, and how is this demand from the previous Hopper generation?

A: Demand strong across all types of GPUs. Strong demand for Hoppers, with customers renewing or upgrading to Blackwells often at better pricing. Strong demand for Blackwells, presold much capacity before facilities opened. Strong demand across all types of GPUs, working to support GPU requirements in subsequent quarters.

Q: Do we have a medium-term capacity target for larger deals and customers?

A: Very opportunistic. Enter deals providing best margins. Focused on margins and profitability, decisions directed by that.

Q: Can you provide more details regarding some of the greenfield sites? Do you have LOIs for further new US and EU DC locations, or are you further down the road with these?

A: Making great progress to bring capacity. Robust pipeline both in Europe and US. On way of securing 2.5 gigawatts of power roadmap, but not in position to say more at this stage.

Q: Can you provide an update on your facility in Israel?

A: Data center facility in Israel fully live. Capacity presold. Israel is great market with vibrant AI, government support. Opportunities to expand further in Israel.

Q: How do you think about partnering with or buying potential companies that already have secured power or land? Consolidating or consolidating other neo clouds.

A: Focused on margins. Looked into potential acquisitions but current approach of vertically integrating and building own facilities has proved to bring higher margins. Strongly believe in organic growth of contract power.

Q: Is there any chance that GPUs are oversupplied in the coming year as new suppliers come to the market?

A: Strongly believe market will still be supply constrained in 2026. Data center capacity will be chokepoint. Conservative stage approach to capital spend keeps in good financial position to weather downturn.

Q: Any big challenges regarding the completion of the Vineland facility? You know, any, you know, challenges to meeting, you know, any performance obligations of your deal.

A: As of today, goes as planned. First tranche handed over to Microsoft, continue working according to plan