Nebius raises $5B in convertible notes

Nebius's latest raise is part of a broader strategy to build AI infrastructure ahead of demand. The company's Q2 revenue grew 454% year over year to $582.3 million, and its AI cloud business reached an annualized run-rate of $3.0 billion. Yet, the spending is enormous relative to current revenue, with capital expenditures in Q2 at $5.7 billion, nearly 10 times revenue. The company is financing this through a mix of debt, equity, and customer prepayments, expecting $9 billion in prepayments in 2026. The real cost of the convertible notes, including accretion, is about 19% of trailing revenue, which is higher than the coupon rates suggest. This underscores the financial strain of rapid expansion. The company remains profitable on an adjusted EBITDA basis, but depreciation costs exceed that profit, raising questions about long-term profitability. The stock's valuation at about 44 times trailing revenue reflects high market expectations. While this deal may not confirm a bubble, it does indicate significant market exuberance, which could be a symptom. Investors are likely watching whether Nebius can grow into its costs and whether it will need to raise again, potentially on less favorable terms.