Nebius plans $40 billion in 2027 spending amid data center delays

The $40 billion expansion plan

Nebius, a company specializing in 'neocloud' infrastructure for AI, recently revealed a massive spending roadmap for 2027. During its third-quarter earnings call, the company announced it plans to spend between $40 billion and $45 billion on capital expenditures. This figure significantly exceeded the expectations of Wall Street analysts.

To fund this enormous expansion, Nebius is employing a specific financial strategy. The company intends to use customer prepayments and loans backed by existing customer contracts to finance the construction of new data centers. This means they are essentially using the future value of their infrastructure to pay for its current buildout.

The company expects these financing methods to cover up to 85% of the total spending required for 2027. While this allows for rapid scaling, it creates a high-pressure environment where the company must deliver on its promises to maintain its financial health. If projects are delayed or canceled, the company could face significant costs without the corresponding revenue to offset them.

Delays at the New Jersey site

Despite the ambitious growth plans, Nebius is currently facing hurdles with some of its most important projects. One of its largest customers, Microsoft, is paying for AI computing capacity at a data center in Vineland, New Jersey. This specific site is currently months behind its original schedule, causing Nebius to lower its 2026 revenue forecast by $200 million.

The delay is linked to the third-party operator of the site, DataOne, which moved to wind down its temporary power generation faster than anticipated. The facility is currently transitioning to Bloom Energy fuel cells. However, the site faced scrutiny after it was discovered to be operating at least 45 natural gas generators without the proper permits.

New Jersey regulators eventually fined the DataOne facility $1.1 million for these permit violations. Additionally, the facility has been hit with a lawsuit from local residents regarding constant humming noise. Because the Microsoft contract includes financial penalties for late delivery and allows for termination if deadlines are missed, these delays represent a significant risk for Nebius.

Microsoft's tightening oversight

The situation at the New Jersey site reflects a broader trend of increased scrutiny from major tech corporations. Reports indicate that Microsoft is becoming more cautious about its deals with third-party infrastructure providers. The company has reportedly been debating whether it is worth signing new agreements with partners who have struggled to meet delivery timelines.

Microsoft has already taken action by pulling back from certain planned agreements when partners failed to meet their obligations. For example, the company recently stopped being an anchor customer for a planned site in Essex due to power delays. It also chose not to exercise an option to double its agreement with another provider, Nscale, for a Texas data center.

Nebius has stated that Microsoft remains part of the planning process for their ongoing projects. While the company has not publicly canceled its partnership, the shift toward stricter oversight means Nebius must prove it can deliver capacity on time. The company maintains that its self-built data centers are on schedule and will provide the majority of its new capacity starting in 2027.

Financial outlook and risks

Nebius reported a significant jump in third-quarter revenue, which rose 571% compared to the previous year. However, about one-third of that growth came from a one-time payment related to a new partnership model. The company currently holds $7.4 billion in cash and expects to reach a pre-tax break-even point by the fourth quarter of 2027.

The company's financial stability relies heavily on the reliability of its major contracts with firms like Microsoft and Meta. These deals involve significant prepayments that arrive well before the actual delivery of computing power. These funds are intended to shore up any additional cash requirements that might arise during the construction phase.

CEO Arkady Volozh acknowledged the difficulties of the current environment during the earnings call. He noted that building at this scale is difficult and that delays are a common issue in the industry right now. As the company moves toward its 2027 goals, its success will depend on its ability to manage third-party risks and navigate the complex logistics of power and construction.