Nebius Group N.V. (NBIS) Q2 2025 Earnings Call Transcript

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Overview

The earnings call summary shows strong financial performance with significant revenue growth and strategic partnerships with NVIDIA and Meta Llama. Product development is robust, and there is a clear market strategy with global expansion plans. The Q&A section provides additional insights into strong demand, competitive customer wins, and meaningful partnerships. Although guidance is reiterated, the strategic plan shows confidence in future growth. Overall, the sentiment is positive, indicating a likely stock price increase in the near term.

Key Financial Performance

Revenue $105.1 million, up 625% year-over-year and up 106% quarter-over-quarter, driven by strength in core business and solid execution from the Tripleten team.

AI Cloud Infrastructure Revenue Increased more than 9x year-over-year, driven by strong customer demand for copper GPUs and near peak utilization of the platform.

Adjusted EBITDA Positive in core business ahead of expectations, achieved through disciplined operations despite hyper growth.

GAAP Net Income Profitable for the quarter due to gains from revaluation of investment in equity securities and gains from discontinued operations, noted as one-time in nature.

CapEx Maintained guidance of around $2 billion in 2025, reflecting investments in capacity expansion.

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Operating Highlights

AI cloud infrastructure revenue: Increased more than 9x year-over-year, driven by strong customer demand for copper GPUs and near peak utilization of the platform.

Software cloud platform enhancements: Big enhancements were made to support expanding capacity and meet the demand of large-scale clusters.

Customer base expansion: Added large global technology customers such as Cloudflare, Prosus, and Shopify, as well as native AI tech startups like HeyGen, Lightning.AI, and Photoroom.

Geographic expansion: Aggressively ramping up data center capacity in New Jersey and Finland, and nearly closing on two substantial new greenfield sites in the United States.

Data center capacity: Expecting to secure 220 megawatts of connected power by year-end, with plans to secure more than 1 gigawatt of power by the end of 2026.

Revenue growth: Reported $105.1 million in revenue, up 625% year-over-year and 106% quarter-over-quarter.

Annualized run rate revenue guidance: Increased guidance from $750 million-$1 billion to $900 million-$1.1 billion for year-end.

CapEx guidance: Maintaining CapEx guidance of around $2 billion in 2025 to support growth.

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Risk or Challenges

Supply Chain Constraints: The company faced challenges due to being oversold on previous generation hoppers and had to wait for the new generation of GPUs to come to market, potentially delaying growth.

Capacity Expansion Risks: Aggressive ramp-up in data center capacity and securing 1 gigawatt of power by 2026 involves significant investment and execution risks, including potential delays or cost overruns.

Financial Sustainability: Despite achieving positive adjusted EBITDA in core business, the company expects to remain negative for the full year at the group level, raising concerns about overall profitability.

Backend-Weighted Revenue: Most GPU installations and revenue are expected in Q4, making the company heavily reliant on backend-weighted performance, which could be risky if delays occur.

Capital Expenditure: The company plans to spend around $2 billion in CapEx in 2025, which is a significant financial commitment and could strain resources if revenue targets are not met.

Deconsolidation of Toloka: The deconsolidation of Toloka from the group could impact overall revenue and operational focus.

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Guidance & Outlook

Annualized Run Rate Revenue (ARR) Guidance: The company has increased its ARR guidance for the year-end from the previous $700 million to $1 billion to a new range of $900 million to $1.1 billion.

Capacity Expansion: By the end of 2025, the company expects to have secured 220 megawatts of connected power, with 100 megawatts of active power. Additionally, the company is in the process of securing more than 1 gigawatt of power by the end of 2026 to support industry growth.

Core Business Revenue Guidance: The company is maintaining its guidance for core business revenue at $400 million to $600 million for 2025.

Group Revenue Guidance: The company is maintaining its group revenue projections of $450 million to $630 million for 2025, excluding Toloka's revenue guidance of $50 million to $70 million.

Adjusted EBITDA Guidance: The company expects to be slightly positive at the group level by the end of 2025, though it will remain negative for the full year.

Capital Expenditures (CapEx) Guidance: The company is maintaining its CapEx guidance of around $2 billion for 2025.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you talk about the overall demand environment and how it looks moving into the second half of this year?

A:The demand environment in Q2 was very strong, with peak utilization by the end of the quarter. Larger clusters allowed onboarding of new large customers, expanding and diversifying the customer base. Strong demand supports ramping up capacity, and additional capacity could have led to more sales. Platform maturity improvements increased competitive win rates.

Q:How should we think about adjusted EBITDA for the core business and the whole group for the remainder of this year?

A:The core business reached adjusted EBITDA profitability ahead of guidance and is expected to remain positive throughout the year. At the group level, adjusted EBITDA is anticipated to turn positive by year-end but will remain negative for the full year. Group adjusted EBITDA is expected to be positive starting next year.

Q:What are the dynamics around ARR, and can you provide an update for this quarter?

A:Annualized run rate revenue grew from $249 million in March to $430 million in June, with positive momentum continuing into July. A significant portion of the increased ARR guidance is already under contract, providing strong visibility. Additional capacity coming online later this year supports the revised ARR guidance.

Q:Why is there an increase in ARR guidance but no change to revenue guidance?

A:The increase in ARR guidance reflects strong demand and the expected delivery of additional GPU capacity later this year. Much of this capacity will come online by year-end, impacting ARR more than in-year revenue. This late-year ramp will create a strong foundation for revenue acceleration in 2026.

Q:How should we think about revenue for next year and the midterm guidance of mid-single-digit billions of revenue?

A:It's too early to provide 2026 guidance, but the midterm outlook of several billion dollars of revenue remains reaffirmed. This assumes capacity growth to support revenue goals and excludes large deals from frontier AI labs or hyperscalers, which would be incremental.

Q:How do U.S. tariffs impact your business and margins?

A:It's too early to determine the definitive impact of U.S. tariffs. While short-term fluctuations are possible, the market is expected to balance out over time. Updates will be provided as more information becomes available.

Q:What is your return on CapEx?

A:For the hopper generation, the break-even is expected in 2-3 years on a gross profit level, including hardware and operational expenses. Higher-margin software and services revenue could shorten the return on invested capital. Blackwells are expected to be priced at a premium, but specifics are not yet available.

Q:What is the timeline for the infrastructure build-out for this year and next year?

A:Capacity is being ramped up with new regions like the U.K., Israel, New Jersey, and Finland. New Jersey has 200 MW under construction, with part available this year and the rest in early 2026. Finland will add 50 MW this year. Advanced discussions for greenfield sites in 2026 are ongoing.

Q:Why choose greenfield sites over build-to-suit options?

A:Greenfield sites allow control over data center design, construction, hardware installation, and phasing, leading to a 20% lower total cost of ownership compared to market averages. They also avoid long-term leases and provide flexibility to tailor phasing to demand.

Q:What opportunities do you see in the U.K. and Israeli markets?

A:The U.K. is a massive AI market with government support and private sector investment. A GPU cluster near London will launch in early Q4, targeting AI startups, enterprises, and verticals like healthcare. Israel is emerging as a dynamic AI hub, with a GPU cluster launching in early Q4 to meet growing local demand.

Q:How do you plan to finance capacity expansion for this year and next year?

A:The business model is working well, with efficient sales of new capacity. Significant cash on hand will be supplemented by opportunistic capital raising, depending on timing and market conditions. The focus is on securing land and power to reach the 1-gigawatt target.

Q:What are the most important updates to the software stack for customers?

A:Customers prioritize speed, reliability, and flexibility. This quarter, network speed doubled, reliability improved with better mean time between failures, and flexibility increased with easier data migration for AI workloads. These updates also support Blackwell deployment readiness.

Q:Can you elaborate on the MLPerf benchmarks?

A:MLPerf 3 and 5-0 results showed impressive performance for large-scale training of Llama 3.1 models. Cloud results are comparable to bare metal benchmarks, offering customers easier, faster, and more cost-effective solutions.

Q:Can you talk about the inference as a service platform and your new role?

A:The inference as a service platform targets enterprise-grade deployment and scaling of open-weight AI models, focusing on high performance and reliability. The platform addresses latency, GPU bottlenecks, and flexibility issues. The new role focuses on scaling go-to-market and sales.

Q:Were recent large customer wins like Shopify competitive, and what are they using Nebius for?

A:Yes, deals were competitive. Shopify uses Nebius' AI infrastructure and training data to optimize the merchant journey. Cloudflare uses Nebius for inference at the edge as part of their Workers API. Both relationships are growing and scaling.

Q:What are your observations since joining Nebius, and what is your strategy for long-term contracts and the enterprise market?

A:The market is massive and growing quickly. The strategy includes building a go-to-market leadership team, expanding customer-facing capacity, and targeting regional AI builders, software vendors, and select enterprise segments. The mid-to-long-term goal is global IT market coverage.

Q:What does demand look like for Blackwells?

A:Strong demand continues for hoppers, with stable pricing. Blackwells are being sold at a healthy premium, and there is interest in Grace Blackwells to be implemented later this year.

Q:What partnerships are most meaningful, and how should their success be measured?

A:Partnerships with Mistral, Baseten, SkyPilot, Lightning AI, and Anyscale expand reach and simplify AI workload scaling. Success is measured by partner platform adoption, revenue contribution, and access to new user segments.

Q:Can you discuss utilization trends in the quarter or by GPU family?

A:As new capacity is added, it is sold through quickly, enabling onboarding of larger customers. The focus is on selling against future requirements to drive expansion of future capacity and GPU versions.

Q:What do you need to do to secure large multiyear deals with hyperscalers?

A:Increasing capacity is the main focus to capture demand from top frontier AI labs. Current projections do not include large deals, so any such deals would be incremental.

Q:Can you provide an update on Avride and its strategic partnership?

A:Avride is scaling its delivery and autonomous vehicle business lines, expanding partnerships with Uber, Grubhub, and others. Road tests in Dallas are ongoing, with a robotaxi service launch planned for later this year. The business is seen as a significant value source.

Q:Any updates on funding from noncore businesses and equity investments?

A:Toloka raised growth capital, retaining a majority economic interest. ClickHouse's valuation increased to $6 billion, with potential for future liquidity events. Avride is performing well, with partnerships and growth in delivery and autonomous vehicles.

Q:How is NVIDIA Lepton impacting your business?

A:NVIDIA Lepton generates a significant customer pipeline, with users starting via Lepton and continuing directly with Nebius. It complements other ecosystem and channel partnerships.

Q:Do you expect to benefit from Europe's AI investments?

A:Yes, Nebius is well-connected in Europe, with data centers and plans to remain a major AI infrastructure builder in the region.

Q:Review of Unclear Management Responses

A:Management avoided providing a direct answer to the question about the impact of U.S. tariffs, stating it was too early to determine the definitive impact and using vague language about market balancing over time.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The company's earnings call summary and Q&A session reveal several positive indicators: increased ARR guidance, strong demand for new facilities and GPUs, and a robust pipeline for future expansion. Despite some concerns about power and supply chain constraints, the management's optimistic outlook, particularly in AI market growth and secured presales, suggests a positive market sentiment. The company's strategic focus on long-term growth and scalability further supports this positive sentiment, leading to an overall positive stock price prediction.

Nebius Group N.V. (NBIS) Q2 2025 Earnings Call Transcript

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The earnings call reveals strong financial performance with a 400% revenue increase and a solid cash balance, indicating financial health. Despite no share buyback program, the company's aggressive expansion plans, particularly in AI infrastructure, and optimistic guidance for future revenue growth are positive indicators. The Q&A section supports this sentiment, with management expressing confidence in financing expansion and achieving positive EBITDA. The absence of a new partnership announcement and the lack of specific guidance details slightly temper the outlook, but overall, the positive elements outweigh the negatives, suggesting a positive stock price movement.

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