Neocloud provider Nebius used its third-quarter earnings call on Thursday to announce a sweeping $40 billion capital expenditure plan targeting 2027 - a figure that significantly exceeded analyst expectations. While the scale of the ambition is notable, the strategy underpinning it relies on a financing model that is already showing signs of strain, as project delays mount and key customer relationships come under scrutiny.

The company intends to fund its infrastructure buildout primarily through customer pre-payments and loans secured against existing customer contracts, effectively leveraging the anticipated value of its data centers before they are even completed. This approach carries meaningful risk: if projects fall behind schedule or are canceled outright, costs continue to accumulate while the revenue those projects were supposed to generate fails to materialize.

"Building at this scale is hard, and delays are part of our industry right now. We are not immune."

The earnings announcement arrived against a backdrop of growing concern about how major cloud buyers are managing their relationships with neocloud vendors. Reports have surfaced indicating that Microsoft is reassessing its commitments to neocloud operators that have failed to deliver capacity on time - a development with direct implications for Nebius, whose financing model is increasingly tied to timely project completion and the repayments that follow.

Microsoft Contract Under Pressure

Microsoft is among Nebius's largest customers, and the two companies are party to a contract valued at up to $19.4 billion for AI computing capacity at a data center located in Vineland, New Jersey. That project is now running months behind its original schedule. According to updated projections, only slightly more than half of the committed Microsoft capacity is now expected to be delivered by the end of the current year, with the remainder pushed to the second quarter of 2027.

Andrey Korolenko, Nebius's chief product and infrastructure officer, attributed the delay to a decision by DataOne - the third-party operator managing the Vineland site - to wind down temporary power generation faster than originally anticipated as the facility transitions to Bloom Energy fuel cells. However, that explanation only tells part of the story.

In August, investigative outlet Floodlight reported that at least 45 natural gas generators were operating at the DataOne facility without the required permits. New Jersey regulators subsequently fined the site $1.1 million, concluding that the unpermitted use of those generators violated federal law. The facility is also facing a civil lawsuit filed by neighboring residents who allege the data center emits a persistent, disruptive humming noise.

Contract Terms and Delivery Risk

The terms of Nebius's contract with Microsoft include provisions that allow Microsoft to terminate affected services after a grace period if delivery dates are missed and no alternative capacity is provided. The original deployment windows for the tranches in question were set for 2025 and 2026, meaning a revised delivery date in the second quarter of 2027 falls well outside the agreed timeline. The contract also stipulates financial penalties for late delivery.

Nebius stated that Microsoft "has been part of the planning process" regarding the revised schedule, though the company stopped short of confirming that Microsoft has formally agreed to the new dates. Microsoft has not made any public announcement about canceling the contract or any portion of it.

On the earnings call, Chief Revenue Officer Marc Boroditsky noted that contracts with both Microsoft and Meta included substantial prepayments that were received well ahead of delivery. However, reporting from Bloomberg last week indicated that Microsoft has been tightening oversight of projects run by third-party operators, including Nebius, IREN, and Nscale, and is actively weighing whether to enter into new agreements with such partners. Microsoft reportedly dispatched employees directly to the New Jersey site to assess conditions on the ground.

Microsoft Pulls Back on Third-Party Deals

In its own quarterly earnings report, Microsoft disclosed that its capital expenditure came in below expectations, citing delays caused by third-party operators. The company has demonstrated a willingness to exit planned agreements when partners fail to meet their obligations. Bloomberg also reported that Microsoft declined to exercise an option that would have more than doubled its arrangement with Nscale for a Texas data center, and that it withdrew as an anchor customer from Nscale's planned Essex facility following power-related delays.

Nebius has sought to draw a distinction between the delays it is experiencing at third-party operated sites and the performance of facilities it controls directly. The company says that data centers it is building and managing itself are coming online on time or ahead of schedule, and that these owned facilities will account for the majority of its new capacity beginning in 2027.

Financing the $40 Billion Plan

Boroditsky said that new deals signed during the third quarter came with prepayments that more than offset the cost of building the corresponding capacity. Nebius closed the quarter with $7.4 billion in cash on its balance sheet.

The company projects that a combination of customer prepayments and asset-backed financing tied to investment-grade contracts will cover up to 85 percent of the planned $40 to $45 billion capital expenditure for 2027. CFO Maria Del Dado Alonso Sanchez identified Microsoft and Meta as the primary contracts eligible for this type of financing. Boroditsky added that the company retains the ability to draw on prepayments to address any further cash needs that arise.

Nebius issued a revenue forecast for 2027 of between $12 billion and $13 billion, and said it anticipates reaching break-even on a pre-tax basis by the fourth quarter of that year.

Third-Quarter Results and Revised Outlook

For the third quarter, Nebius reported revenue of $981 million, representing a year-over-year increase of 571 percent. Notably, roughly one-third of that total was attributable to a one-time payment connected to a newly adopted partnership structure rather than recurring operational revenue.

The company also revised its 2026 revenue forecast downward by $200 million, now projecting $3 billion for that year. The reduction was attributed to delays at third-party sites, with the New Jersey facility cited as a primary factor. Investors responded negatively to the combination of the guidance cut and the disclosure of ongoing project issues, sending Nebius shares down 17 percent by the close of trading on Thursday.

The broader picture for Nebius is one of a company pursuing an aggressive expansion strategy in a market where execution risk is high and the tolerance of major customers for missed deadlines appears to be diminishing. Whether the company can deliver on its 2027 targets while managing the complications at its third-party sites will be closely watched by investors and industry observers in the months ahead.