Nebius Group (NASDAQ: NBIS) has entered a deep correction, with shares dropping more than 37% from their year-to-date peak. The stock now trades near $189, and all eyes are on the company's upcoming earnings report, scheduled for next Wednesday.
The neocloud provider, which operates large-scale data centers for clients like Meta Platforms, Revolut, and Microsoft, has faced mounting concerns over intensifying competition and rising capital expenditure requirements. These worries have weighed on the stock despite the company's rapid revenue growth.
Competitive pressures mount
Nebius operates in a highly competitive segment of the AI infrastructure market. Rivals such as SpaceX have already secured major orders from Reflection AI, Anthropic, and Google. More concerning for investors, Meta Platforms—Nebius's largest customer—is reportedly exploring selling its own excess data center capacity, a move that could generate billions in revenue and directly compete with Nebius.
Additionally, Bitcoin miners including Riot Platforms, Mara Holdings, TeraWulf, and Hive Digital are pivoting into AI data centers, adding further supply. While overall data center spending is projected to grow, the influx of new capacity could pressure pricing and utilization for established players like Nebius and CoreWeave.
Cost concerns and financing risks
Another key risk is the potential for higher-than-expected spending on memory, servers, and GPUs. Rising component costs could force Nebius to increase borrowing or issue additional shares to fund its expansion, diluting existing shareholders.
Analysts expect the upcoming earnings to show revenue of $574 million for the quarter, a 446% year-over-year increase. For the full year, revenue is projected to surge 538% to $3.38 billion, with next year's figure estimated at $11.46 billion as data center contracts ramp up. However, the company is expected to report negative free cash flow, having posted a deficit of over $3.3 billion in the last quarter.
Options market signals volatility
The options market is pricing in significant movement after the earnings release. Implied volatility for options expiring next week stands at 157%, above the historical average of 150%. The put/call ratio for these contracts is 1.47, indicating more puts than calls—a bearish signal.
Notably, options expiring on August 21 show a put/call ratio of 2.64, suggesting traders are buying longer-dated protection beyond the immediate earnings event. This implies that market participants expect sustained downside pressure, not just a one-day reaction.
Technical analysis points lower
On the daily chart, NBIS peaked at $299.96 before pulling back to a low of $145.90, which sits just below the 50% Fibonacci retracement level of $157. The stock found support near its 200-day exponential moving average. A small triple-top pattern has formed, a classic bearish reversal signal.
Given the options market's expectation of a move exceeding 10%, and with puts outnumbering calls, the stock could decline to the $155-$160 range following the earnings announcement. However, if the company delivers strong results and reassures investors on its growth trajectory, a rebound is also possible.
For context, other AI-related names have faced similar volatility. Figma's stock tumbled on AI costs, while SanDisk options priced a 14.9% swing as the NAND cycle faces a durability test. The broader AI trade has cooled, as seen in futures split as AI trade cools.
This article is for informational purposes only and does not constitute financial advice.
