Why Nebius Group Stock Got Crushed on Wednesday
Key Points
Nebius announced a $4.5 billion capital raise to fund its AI-centric data center build-out.
The company also plans to convert some existing debt to Class A stock, which would dilute existing shareholders.
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Nebius Group (NASDAQ: NBIS) stock turned sharply lower today, falling as much as 14%. As of 12:49 p.m. ET, the stock was still down 7.6%.
The catalyst that sent the artificial intelligence (AI) and neocloud specialist lower was news that the company is raising capital.
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Show me the money
In a press release that dropped on Wednesday, Nebius announced its latest bid to raise capital. The proposed private offering of $4.5 billion in convertible senior notes will fund the company's ongoing data center build-out. The company plans to sell $2.75 billion in notes due in 2030, with another $1.75 billion due in 2034.
However, it was another announcement buried within the press release that sent the stock lower. Nebius announced plans to enter into a number of "privately negotiated transactions" to exchange a limited number of its existing 2029 notes for Class A shares. As management noted in the announcement, the resulting dilution "could decrease the market price" of its shares.
Nebius Group has been growing like wildfire. The neocloud operator builds data centers stocked with the world's most capable graphics processing units (GPUs) and other AI chips, providing its customers with the computational horsepower needed for AI processing. Demand for its services currently outstrips supply by a wide margin, so the company is building as quickly as it can.
In the second quarter, Nebius's revenue surged 454% year over year to $582 million, while reducing its adjusted net loss to $33 million, down from $92 million in the year-ago quarter. Moreover, the company's full-year forecast calls for revenue of between $3 billion and $3.4 billion, or growth of 466% at the midpoint of its guidance.
To maintain its blistering growth, Nebius is scrambling to raise capital for the next stage of its build-out. We don't yet know the extent of the dilution to existing shareholders, which is fueling today's knee-jerk reaction.
This is Nebius Group's third capital raise of the year, and it likely won't be the last. The magnitude of the funds the company needs for data center construction will only increase. This, in turn, is driving Nebius's triple-digit growth. It's also worth noting that even after today's sell-off, the stock is still up 174% so far this year.
The volatility is part of the cost of entry for owning this stock.
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Danny Vena, 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.
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