Nebius Stock Just Reminded Investors About Its Biggest Risk

Fast-growing companies can be exciting to invest in. Their valuations are modest, and they have a ton of upside, suggesting massive returns. Nowadays, spending on artificial intelligence (AI) and other tech-related areas has been through the roof, and there are plenty of stocks benefiting from that hype.

Nebius Group (NASDAQ: NBIS) is a stock that belongs in that group. Over the past 12 months, it has skyrocketed around 370%, making it one of the hottest names in tech these days. It provides companies with AI cloud infrastructure to help "empower builders everywhere." It is investing heavily in data-center expansion, but that is a costly endeavor. And to do that, the company needs to raise cash. It recently announced a bond offering, which led to a decline in its share price.

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Nebius to raise $3.75 billion through convertible bonds

Shares of Nebius fell by more than 10% on Tuesday, on news of its plans to raise $3.75 billion via convertible bonds. For Nebius investors, it highlights arguably the biggest risk with the business: it isn't generating enough cash to fund its expansion efforts. That raises the risk of dilution, which can have a significant negative impact on the share price. While the notes aren't due until 2031 and later, there is the potential for those notes to convert to stock before then.

In 2025, Nebius generated positive cash flow from its operations totaling $385 million, which is great, but it's far short of what it needs. Last year, it spent a whopping $4.1 billion on capital expenditures. And as the tech company scales its operations to meet growing demand from hyperscalers, its expenditures may increase in the future.

The stock has potential, but it also carries significant risk

Nebius has some exciting opportunities due to AI, but this is a capital-intensive business. For tech giants, it can make sense to outsource some of their AI needs rather than building the necessary data centers and infrastructure themselves, as it allows them to be leaner and more efficient. For Nebius, however, it means the probability is high that it's going to need to raise more cash for the foreseeable future.

While Nebius has generated some incredible gains over the past year, investors should be careful with the stock. As quickly as it has come up in value, it can also come down, especially if the AI bubble bursts and companies begin to scale back on their expenditures, which can happen amid worsening economic conditions.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.