Nebius Plans $40 Billion AI Infrastructure Expansion Amid Delays and Financing Challenges

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Nebius announced a $40 billion AI infrastructure buildout for 2027, relying heavily on customer prepayments and loans backed by contracts. Delays at Microsoft-backed data centers raise concerns about the viability of this financing approach.

Nebius, a prominent company in the emerging 'neocloud' sector, revealed ambitious plans on its third-quarter 2026 earnings call to spend approximately $40 billion in 2027 expanding its AI infrastructure. This figure significantly exceeds Wall Street expectations and highlights Nebius’s aggressive growth strategy tied to the increasing demand for AI computing capacity.

The company intends to finance this expansion largely through customer prepayments and loans secured by contracts with major clients. This model leverages the anticipated future revenue from data centers to fund their construction and deployment. However, such a strategy carries risks if project timelines slip or contracts are disrupted.

A critical challenge emerged from Nebius’s relationship with Microsoft, one of its largest customers. Microsoft is contracted for up to $19.4 billion of AI capacity at a data center in Vineland, New Jersey, operated by third-party DataOne. Unfortunately, that facility has experienced significant delays. Originally, more than half of the Microsoft capacity was expected by the end of 2026, but delivery has been pushed into the second quarter of 2027.

The delays stem partly from DataOne’s decision to prematurely end the use of temporary natural gas generators, transitioning instead to Bloom Energy fuel cells. This change was enforced after regulatory penalties, including a $1.1 million fine for operating generators without permits, and amid noise complaints from local residents. Since DataOne controls the site, these issues are outside Nebius’s direct management.

According to Nebius, Microsoft has been involved in planning revised timelines, though it has the contractual right to terminate service beyond grace periods and impose financial penalties for late delivery. Despite these challenges, Microsoft has not publicly canceled its agreement. Still, recent reporting indicates Microsoft is scrutinizing third-party projects more closely and reconsidering future partnerships similar to those with Nebius.

Nebius emphasized that its own proprietary data centers, which it controls directly, are progressing on or ahead of schedule and are expected to provide the majority of new capacity in 2027. New contracts, including those with Microsoft and Meta, have reportedly included significant prepayments, which help mitigate upfront capital requirements.

Financially, Nebius ended its quarter with $7.4 billion in cash and expects that the combination of prepayments and asset-backed financing will cover up to 85% of its planned 2027 capital expenditures. The company forecasts revenue between $12 billion and $13 billion for 2027 and aims to reach pre-tax breakeven by Q4 2027.

Despite reporting a 571% year-over-year surge in third-quarter revenue to $981 million, Nebius lowered its 2026 revenue forecast by $200 million due to the delays at third-party sites. Following the announcement, the company’s shares dropped 17%, signaling investor concerns over execution risks.

Nebius’s situation illustrates the challenges of scaling AI infrastructure at unprecedented volumes using innovative financing models that rely heavily on third-party site operations and timely project delivery. The outcome will likely influence how neocloud companies approach capital raises and contract structures in the rapidly evolving AI cloud market.