CNBC’s Kristina Partsinevelos joins 'Money Movers' to discuss what's behind shares of Nebius surging.

Amsterdam-based Nebius experienced a significant increase in its share price after securing a $19 billion deal with Microsoft to provide AI infrastructure services through 2031. Rather than expanding its own data centers, Microsoft opted to rent GPU capacity from Nebius, reflecting the tech giant's struggle to keep up with surging AI demand despite record capital spending.

NVIDIA, a lead investor in Nebius and another provider, CoreWeave, stands to benefit from this arrangement through its equity stakes. However, analysts have raised concerns about Nebius's ability to finance the deal, given its comparatively modest revenue. The company plans to fund the contract through cash flow and debt secured against the Microsoft agreement, which introduces new financing risks and highlights the evolving challenges in the AI infrastructure sector.

Nebius surges on Microsoft deal

Welcome back. Shares of Amsterdam-based Nebbius, the beneficiary of Microsoft's latest AI deal. Our Cristina Pardsonevelos is tracking that move for us this morning, and it's a big move, KP. Yeah, no doubt. So you mentioned this deal. It's a massive deal worth $19 billion with Nebbius for AI infrastructures through 2031. But the real story really isn't the price tag, although big, it's what Microsoft chose not to build. Despite record capital spending, Microsoft decided to rent GPU capacity rather than expand its own data centers. Microsoft CFO Amy Hood told investors in July that the company expected to, quote, remain capacity constraint through year end, suggesting even their massive internal build out just can't keep pace with AI demand. Microsoft had said these rental deals are their least favorite option in the past. They'd rather build their own capacity. So signing with Nebbius shows just how desperate the crunch has become. Add in their existing core partnership, and Microsoft is clearly betting on multiple third party providers because it's faster than going solo. And NVIDIA stands to benefit. Why? NVIDIA was the lead investor in Nebbius and also backs CoreWeave with a 7 percent stake worth over $3 billion. NVIDIA just doesn't just sell the hardware. It profits from the GPUs as a service business model through equity stakes in both major players. But Nebbius has about $200 to $300 million in revenue and just signed a over $17 billion deal, a massive mismatch that screams financing risk. And this is according to Wells Fargo in their note. The company plans to fund this through cash flow and debt secured against the Microsoft contract. But that gets into a messy territory and could suggest we've reached this part of the cycle where capital financing gets incrementally more creative and thus riskier. And this financing strain across the neocloud sector, that's what they're called, GPUs as a service, represents the new frontier of AI infrastructure risk. Microsoft gets its capacity faster, but now depends on highly levered partners in an increasingly expensive arms race, guys. KP, we were talking this morning about, you know, Goldman has this chart floating around about estimates for CapEx among the hyperscalers. And it's it's expected to slow beginning in Q4 and into next year. But can deals like this sort of fill that gap and and keep the market from getting too worried about a slowdown? Well, these this is an example of a deal that's going to last over five years. So perhaps you could say yes, but or you could say that it's going to be priced in early on. And then just like we saw the reaction to Nvidia's share price post earnings, the the wow factor is going at the size of the magnitude of the beats just isn't the same anymore. So that's going to be the same case for CapEx and begs the question, how much would be priced in early on within the next two years versus five years out when we start to see that diminishing growth?

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