Before You Buy Nebius Stock, Make Sure You Understand These 2 Big Risks

Nebius Group (NASDAQ: NBIS) stock has skyrocketed as investors race to get into companies that could be the next major winners in artificial intelligence (AI) infrastructure. The company recently reported 684% year-over-year revenue growth, fueling investor excitement around its rapidly expanding AI cloud business.

But it's important for investors who are considering adding it to their portfolios to understand that Nebius faces several major risks that could significantly impact its long-term outlook.

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Nebius is spending enormous amounts of capital

The biggest risk Nebius faces is the sheer cost of competing in AI infrastructure.

The companies that are training and operating advanced artificial intelligence systems require serious processing power. To achieve that demands massive investments in graphics processing units (GPUs), data centers, networking equipment, cooling systems, and electrical infrastructure. Because of all this, AI infrastructure is increasingly behaving less like software and more like industrial infrastructure. And building that infrastructure at scale is expensive.

Nebius plans to spend aggressively to build out its data center footprint as demand for AI compute continues rising. Management recently projected that its capital expenditures could reach $20 billion to $25 billion in 2026.

That strategy could pay off if AI demand continues growing rapidly for years. But it also creates substantial risk.

Infrastructure businesses have historically been vulnerable to cycles of overbuilding. Industries like railroads, telecom fiber, solar manufacturing, and semiconductors all experienced periods when surging demand led companies to invest aggressively, only for their expansions to lead to conditions of excess supply and a loss of pricing power that eventually hurt their returns.

That risk matters in this case because so much of Nebius' current momentum stems from AI computing capacity shortages. Today, demand for AI infrastructure is growing faster than cloud providers can build it. But if supply eventually catches up and then exceeds demand, pricing power across the sector could weaken significantly.

The key question investors should watch is whether Nebius can generate an attractive long-term return on invested capital for the money it is deploying to build its new data centers. Rapid revenue growth alone will not matter much if the business eventually struggles to produce durable economics.

Nebius' biggest customers could eventually become its biggest competitors

The second major risk is customer concentration.

Much of the excitement surrounding Nebius stems from its large contracts with companies such as Meta Platforms and Microsoft. Those relationships helped validate Nebius as a serious player in AI infrastructure.

But relying heavily on a small number of customers creates meaningful risks. Large hyperscalers often have enormous bargaining power. If just a few customers eventually represent a significant portion of Nebius' future revenue, those customers could gain leverage over pricing and contract terms.

There is another complication as well. Nebius is effectively helping some of the world's largest technology companies expand their AI capabilities while those same companies simultaneously build their own competing infrastructure.

Today, hyperscalers may need to lean on external AI cloud providers because demand for compute capacity is exploding so quickly that they can't keep up using in-house resources. But over time, as they continue expanding their own infrastructure footprints, companies like Meta and Microsoft could bring more of their workloads in-house.

That raises an important long-term question for investors: Is Nebius building a sustainable AI infrastructure platform, or is it simply benefiting from a temporary supply shortage? The answer could determine whether Nebius will be a long-term winner in AI infrastructure or just another highly cyclical technology stock.

What should investors do now?

None of this means investors should automatically avoid Nebius stock. The company still sits in a potentially massive market opportunity tied to artificial intelligence infrastructure.

Management has also projected that annual recurring revenue could reach between $7 billion and $9 billion by the end of 2026, underscoring why many investors remain optimistic about the company's long-term growth potential.

But investors should still approach the stock with realistic expectations.

Nebius has not yet proven itself to be a long-term compounder. It is a high-growth, capital-intensive infrastructure bet operating inside a rapidly evolving industry. Its volatility could remain extremely high, especially after the stock's massive run-up.

For investors interested in the opportunity, a more measured approach may make sense. Instead of chasing momentum aggressively, investors may want to watch whether Nebius can continue scaling efficiently, improve long-term economics, and diversify its customer base.

Only when investors have built a high conviction (and if the stock offers a compelling entry price) should they make their next move.

Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool has a disclosure policy.