Michael Burry shorts Nebius stock: Is it a buy or sell before earnings?

Nebius Group stock dived for two consecutive days after Michael Burry revealed a short position in the company and as investors waited for its earnings report. NBIS dropped to $187, down 37% from its year-high. So, what next for the Nvidia-backed company?

Michael Burry shorts Nebius stock ahead of earnings

Burry, a popular investor who accurately predicted the Global Financial Crisis (GFC) has taken a short position in Nebius, one of the fastest-growing companies in the United States. He also placed a short bet on Larry Ellison’s Oracle.

Burry has also taken short positions in other companies in the artificial intelligence industry, which he believes are highly overvalued. Most notably, he has continued to warn about the AI bubble, which he believes will ultimately burst.

If this happens, some of the top companies to watch will be neocloud names like Nebius, CoreWeave, and IREN.

Burry is not the only investor to take a short position in the company. Data shows that the company has a short interest of 27%, much higher than CoreWeave’s 15% and IREN’s 25%. This means that nearly a third of its float is now held by short sellers who expect it to retreat in the near term.

Nebius to release a strong earnings report

Despite Burry’s concerns, there are signs that the company will release strong financial results later this week. Yahoo Finance data shows that analysts expect the company’s results to show that revenue jumped by 446% to $576 million in the second quarter. This is a big number since the company made $529 million in revenue last year. 

Nebius Group’s revenue is soaring because of its large partnerships, with the most significant one being its $27 billion deal with Meta Platforms. This growth is expected to continue this year, with the annual figure expected to jump by 537% to $3.38 billion. It is then expected to move to $11.4 billion next year.

Investors have taken a short position on the company for several reasons. First, competition in the industry continues rising, with companies like Meta and SpaceX entering the sector. Google is also considering selling its extra computing capacity.

The company is also yet to make a profit, with the loss per share expected to jump to $2.8 this year and $5.83 next year. Its free cash flow is expected to remain in the negative zone in the coming years as it funnels most of its revenue towards its data center and other businesses.

Additionally, there are concerns about its valuation, with its market capitalization being $47.7 billion, 4x higher than its expected 2027 revenue. 

There is also a risk that the company will increase its borrowing substantially in the coming years. It may also decide to use its ATM to raise cash, diluting its investors.

Nebius Group stock technical analysis

NBIS stock chart | Source: TradingView

The daily chart shows that the NBIS stock has been in a strong downward trend in the past few months. It has slumped from the year-to-date high of $299 to the current $197. Most notably, it has already dropped below the 50-day Exponential Moving Average (EMA), a sign that bears have regained control.

The stock has also dropped below the strong, pivot, and reverse level of the Murrey Math Lines tool. Therefore, there is a risk that the stock will continue falling, potentially to the psychological level of $150. The alternative scenario is where the stock jumps to the important resistance level of $225.