AI spending is alive and well

Despite endless speculation about the necessity of spending billions of dollars on AI hardware, the infrastructure powering the AI boom keeps proving it's a red-hot business.

At least that’s what investors surmised from Microsoft's $17.4 billion deal with Amsterdam-based AI computing company Nebius. Shares of the company that sounds like a video game your brother played in seventh grade soared 49.42% today, while Microsoft ended the day nearly flat.

The deets: The agreement gives Microsoft access to Nebius’s AI infrastructure for five years, and the price tag could reach $19.4 billion if Microsoft ups its demand for data centers. Nebius management thinks that this is only the beginning of more good things to come. “We have also said that, in addition to our core business, we expect to secure significant long-term committed contracts with leading AI labs and big tech companies,” explained CEO Arkady Volozh in a statement.

Nebius’s competitor, CoreWeave, also popped 7.13% today, given the news is a boon for the AI hardware business at large.

Nebius was spun out of Russian search and internet giant Yandex. Today’s record-breaking jump comes after an already stellar year for the company, during which it has nearly doubled its share price.

Everyone wants hardware…but also software: It’s not a story about AI unless we mention fan favorite Nvidia, which is an investor in Nebius and names the company as a customer. Even as today’s news reaffirms the race for AI hardware, it also indicates that the software layer will play a key role. After all, Nebius’s core business is a cloud computing platform on which chips (like Nvidia’s) run.

The stakes are high

If you sensed a wave of relief from the market today, it’s because AI spending has become somewhat of a touchy topic for investors, who got spooked last month on fears that the AI trade was sputtering.

After all, AI spending isn’t just high-stakes for big tech companies and data center providers. It’s also the pillar supporting the entire AI trade—and therefore the entire stock market, given Nvidia alone now accounts for roughly 8% of the S&P 500.

The pros are already speculating how rough the hangover could be if all this AI spending turns out to be frivolous. Goldman Sachs analyst Ryan Hammond wrote in a note last week that he expects AI capex spending to taper off late this year and into 2026, something that, “would likely be accompanied by a deterioration in the outlook for long-term AI-driven earnings growth, weighing on valuations as well.”

But today’s deal between Microsoft and Nebius proves that the spending spree isn’t over just yet.—LB