Nebius, which split off from Yandex, has announced a billion-dollar deal with Microsoft. The AI infrastructure provider will supply Microsoft with capacity worth $17.4 billion until 2031.
Nebius’ shares had already risen 220 percent since it went public in October last year, but the new Microsoft deal caused a sharp increase. Analyst Alex Platt of DA Davidson calls the agreement “further proof that Nebius is the leading neocloud player,” beating even large hyperscalers for sovereign contracts.
From Russian giant to European AI player
Amsterdam-based Nebius was part of Russian internet group Yandex until last year. After Russia’s invasion of Ukraine, it sold its Russian operations and renamed itself Nebius. CEO Arkady Volozh had to resign from his position at Yandex following EU sanctions, but these were later lifted after he condemned the invasion as “barbaric.”
Nebius has thus gained a huge boost as a European AI infrastructure player. In December last year, the company raised $700 million from investors, including Nvidia, to expand its data center capacity.
Microsoft’s crucial search for capacity
For Microsoft, a deal like this comes at just the right time. According to CFO Amy Hood, the company was still struggling with capacity shortages in July that were expected to continue until the end of 2024. Demand for AI services continues to exceed capacity, despite record investments in new data centers.
Microsoft has previously entered into similar deals with parties such as CoreWeave, also a “neocloud” like Nebius, for additional computing capacity. It also has a contract to provide AI computing power to ChatGPT creator OpenAI. The collaboration with Nebius should help solve these capacity issues.
Implementation and financing
Although this may be a European AI player signing a deal with an American hyperscaler, the actual activities revolve around the US. Nebius will provide Microsoft with dedicated AI computing capacity from a new data center in Vineland, New Jersey, which will become operational later this year. The contract runs until 2031 with options for renewal, with the total deal potentially worth an additional $2 billion.
To finance its accelerated growth, Nebius will use revenue from the deal and debt secured by the contract. The company says it is evaluating “several additional financing options” to enable its planned expansion.