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Microsoft Taps Nebius in $17B AI Infrastructure Deal To Alleviate Cloud Strain

Microsoft has signed a five-year, $17.4 billion agreement with Amsterdam-based Nebius Group to expand its AI computing capabilities through third-party GPU infrastructure.

The deal, which includes options that could raise its total value to $19.4 billion, underscores Microsoft's need to scale AI cloud services without additional capital expenditures amid ongoing capacity bottlenecks. Microsoft Chief Financial Officer Amy Hood told investors in July the company expected to "remain capacity constrained" through the end of 2025.

As part of the arrangement, Nebius will deliver dedicated GPU resources from a new datacenter in Vineland, N.J., starting later this year. Microsoft's move highlights a growing industry trend: Hyperscalers are increasingly relying on external providers like Nebius and CoreWeave to meet surging AI demands without tying up their own balance sheets.

The partnership allows Microsoft to expand cloud capacity without additional capital expenditures on its balance sheet. Instead, Nebius will finance datacenter construction through cash flow from the contract and debt secured against the Microsoft agreement.

"We believe the trend is clear -- capex is out and off-balance-sheet arrangements with external debt are the way forward," D.A. Davidson analyst Gil Luria wrote in a research note.

The deal caps a significant transformation for Nebius CEO Arkady Volozh, who previously built Russian technology company Yandex before the 2022 Ukraine invasion upended his international expansion plans. The European Union sanctioned Volozh but later had restrictions lifted after condemning the invasion and orchestrating Nebius's separation from Yandex's Russian operations.

Nebius emerged from the Yandex restructuring and resumed trading on Nasdaq in October 2024. The company's shares have gained 350% since returning to public markets.

The Microsoft deal positions Nebius as a significant competitor to CoreWeave, another specialized AI infrastructure provider that also serves major technology companies. CoreWeave was valued at $46 billion compared to Nebius's approximately $15 billion market capitalization before this week's announcement.

Microsoft has previously contracted with multiple providers to address capacity shortages, including agreements with CoreWeave and commitments to provide computing power to OpenAI, the maker of ChatGPT.

Nebius indicated it expects to announce additional contracts with other major technology companies and AI laboratories, suggesting the neocloud infrastructure model may gain wider adoption among hyperscale providers facing similar capacity constraints.

About the Author

John K. Waters is the editor in chief of a number of Converge360.com sites, with a focus on high-end development, AI and future tech. He's been writing about cutting-edge technologies and culture of Silicon Valley for more than two decades, and he's written more than a dozen books. He also co-scripted the documentary film Silicon Valley: A 100 Year Renaissance, which aired on PBS.  He can be reached at [email protected].

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