The optics of Nokia’s second-quarter numbers are hard to argue with: comparable operating profit of €434 million blew past the €382 million consensus, and management felt confident enough to nudge its full-year guidance higher. Yet beneath that headline beat lies a more complicated picture — one where the company’s newest growth engine is doing the heavy lifting while cash generation goes into reverse.
The Finnish network equipment maker now expects comparable operating profit for 2026 to land between €2.1 billion and €2.6 billion, up from its earlier range of €2.0 billion to €2.5 billion. The revision, confirmed by Reuters, was driven by sustained demand from AI and cloud customers — a segment that is rapidly becoming the defining feature of Nokia’s growth narrative.
The AI Dependency Question
That dependency is starkly visible in the quarterly breakdown. Revenue rose by €372 million year-on-year, and €226 million of that came from AI and cloud clients. The cohort now accounts for just 9.3 percent of group turnover — yet it contributed 61 percent of all growth. The imbalance has reignited debate about whether Nokia’s expansion story has genuine legs or remains too narrowly concentrated in one still-maturing vertical.
The segment’s revenue itself doubled to €446 million in the quarter, with new orders reaching €2.8 billion. That order backlog is the single most important number for bulls: it represents a pipeline of committed business that should, in theory, translate into future billings. The question is how quickly — and at what margin — that conversion happens.
Cash Flow Tells a Different Story
For all the operational progress, the financial mechanics remain uncomfortable. The reported bottom line swung to a loss of €50 million, while free cash flow came in at minus €732 million. That combination — rising operating profit alongside deeply negative cash conversion — is precisely why analysts are scrutinizing the valuation rather than simply celebrating the earnings beat.
The Network Infrastructure division, Nokia’s traditional cash cow, delivered a 12 percent revenue increase to €2.037 billion, powered by 20 percent growth in Optical and 16 percent in IP. Solid numbers, but they underscore the broader tension: the legacy business is stable, the AI business is surging, and yet the company is still burning cash as it funds the transition.
Wall Street’s Divided Verdict
The analyst community reflects that ambiguity. Of 18 institutions surveyed, 13 rate the stock a buy, three a hold, and two a sell — a “Moderate Buy” consensus. JPMorgan stands at the bullish end with a $21 price target set back in June, but the average target sits well below that, signaling a wide dispersion of views.
A more cautious note came from AlphaValue/Baader Europe, which downgraded Nokia to “Reduce” on August 13 even as it raised its price target. The move suggests that at least some market participants see the recent rally as largely priced in, even if the operational trajectory remains positive.
Should investors sell immediately? Or is it worth buying Nokia?
From Hangzhou to Washington
Alongside the quarterly results, Nokia is executing a strategic pivot with geopolitical overtones. The company is closing its research center in Hangzhou, China, eliminating 1,600 positions. Management cites shrinking market access, geopolitical tensions, and a broader global restructuring as the drivers.
The retreat from China dovetails with a deepening US embrace. In November, Nokia announced a $4 billion investment program for AI-capable network technologies in the United States, developed in coordination with Washington. According to Finnish newspaper Kauppalehti, Ben Black, head of the US development agency DFC, recently visited Finland to meet with Nokia leadership. The paper reports that Washington wants to anchor Nokia more firmly within the Western camp, though a direct DFC investment is considered unlikely.
The Stock’s Two Speeds
The share price tells its own story of momentum and caution. The stock closed Friday at €9.35, up 1.3 percent on the day, and has gained 17 percent over seven trading sessions. Year-to-date, it stands 67 percent higher. Yet at €9.39 currently, it trades roughly 7.3 percent below its 50-day average of €10.13 — a sign that the blistering pace of recent months has cooled. The gap to the 52-week high of €14.97, set in early June, remains a substantial 37 percent.
A mid-month catalyst came from the supply chain: Nokia shares jumped 9.6 percent following a better-than-expected forecast from US optical components maker Lumentum, a signal of robust demand in optical networking and AI infrastructure. Partnerships are also reinforcing the narrative — Ooredoo of Qatar is expanding its AI ambitions via the Zankore platform, developed jointly with Indosat Ooredoo Hutchison, Nokia, and Nvidia.
In a smaller administrative note, Nokia transferred 957,142 treasury shares to participants in its equity-based compensation programs, leaving it with roughly 87.6 million own shares. The move is immaterial to the company’s operational assessment but highlights ongoing use of stock programs for employee retention.
The Transition’s True Cost
Nokia is, in essence, a company in mid-transformation. The traditional networking business generates dependable earnings; the AI division grows quickly but remains too small to carry the group alone. The negative free cash flow and the politically motivated China exit are the visible costs of that pivot.
For investors, the crux is straightforward: can the €2.8 billion AI order backlog convert into revenue and positive cash flow over the coming quarters? The order book suggests demand is real. Whether the balance sheet can absorb the transition costs without further strain is the question that will determine whether this rally has staying power.
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