Nebius surges on Microsoft deal

Core Insights - Microsoft has entered a significant $19 billion deal with Nebas for AI infrastructure through 2031, highlighting the urgency of AI demand [1] - The decision to rent GPU capacity instead of expanding its own data centers indicates a capacity constraint despite record capital spending [2][3] - Microsoft CFO indicated that the company expects to remain capacity constrained through the end of the year, emphasizing the challenges in meeting AI demand [3] Company Strategies - Microsoft is opting for partnerships with multiple third-party providers to expedite capacity acquisition, rather than relying solely on internal expansion [4] - Nvidia, as a lead investor in Nebas, stands to benefit from this arrangement, as it also holds a significant stake in Coreweave [4] Financial Considerations - Nebas currently generates $200 to $300 million in revenue but has signed a deal worth over $17 billion, raising concerns about financing risks [5] - The funding strategy for Nebas involves cash flow and debt secured against the Microsoft contract, which may indicate a shift towards more creative and riskier financing methods [6] Market Dynamics - The deal with Nebas allows Microsoft to secure capacity more quickly but increases reliance on highly leveraged partners amid a competitive landscape [7] - There are expectations of a slowdown in capital expenditures among hyperscalers starting in Q4, raising questions about the sustainability of such deals in maintaining market confidence [8]