Despite Michael Burry's notable short position against Nebius Group, the AI cloud company recently announced impressive second-quarter financial results. The firm reported a staggering 454% year-over-year revenue increase, reaching $582.3 million, and reaffirmed its full-year guidance. This strong performance led to a significant surge in its stock price, climbing approximately 34% to around $259 per share, considerably above Burry's shorting price of $212. However, the initial market reaction doesn't fully address Burry's underlying concerns regarding the company's long-term profitability, especially concerning its depreciation practices for AI infrastructure.
Nebius Group's AI cloud division was a primary driver of its exceptional second-quarter growth, with revenue expanding by 514% year-over-year to $575 million. The annualized run rate for its AI cloud services escalated to $3.0 billion, a substantial increase from $1.9 billion at the close of March and $1.25 billion by December's end, indicating an accelerating growth trajectory. Alongside this revenue surge, the financial health of the AI cloud unit also improved, with adjusted EBITDA margins reaching 50%, up from 45% in the first quarter and 24% in the fourth quarter of the previous year. This demonstrates a clear enhancement in operational efficiency and profitability within its core business segment.
The company also secured significant contractual agreements during this period. Nebius finalized four contracts, each valued at over $1 billion, and approximately 70% of the quarter's deals included customer prepayments covering 50% to 60% of the associated capital expenditures. Arkady Volozh, the founder and CEO, expressed confidence in the company's future, stating that they could sell their entire 2027 capacity under these favorable terms today. Furthermore, the company's financial liquidity remains robust, with operating cash flow reported at $2.2 billion and a cash reserve of $8 billion by the end of June, addressing potential worries about funding future data center expansions.
However, Michael Burry's critique primarily targets Nebius's accounting methods, particularly how it handles the depreciation of its AI infrastructure. He argues that the company, like others in the AI sector, may be overstating profits by depreciating hardware too slowly, extending the accounting life of assets that have a much shorter product cycle of two to three years. For Nebius, depreciation and amortization amounted to $259.7 million in the second quarter, representing 45% of its total revenue and exceeding its adjusted EBITDA of $236.2 million. On a GAAP basis, Nebius reported a net loss of $190.4 million. The company's decision to depreciate servers and network equipment over five years, extended from four years at the beginning of 2026, aligns with Burry's argument that such practices can artificially inflate reported earnings. Given that Nebius invested $5.7 billion in capital expenditures in Q2 alone, depreciating this over five years would imply over $1.1 billion in annual depreciation once in service, potentially surpassing the company's current annualized adjusted EBITDA.
Despite strong demand and robust funding, the ongoing debate centers on the actual profitability once the full costs of hardware are accurately reflected on the income statement. While Nebius demonstrates impressive growth and secures substantial contracts, its current valuation, approximately 20 times its projected revenue of $3.0 billion to $3.4 billion for the year, is seen as exceptionally high. Additionally, the company is partially funding its expansion through stock dilution, having sold 12.7 million shares for roughly $2.8 billion, with further shares available under the program. This suggests that while the market has reacted positively to its revenue growth, the long-term financial health and true profitability of Nebius Group, under Burry's critical accounting lens, remain a subject of considerable discussion and scrutiny.
