Nokia’s AI Cloud Surge Masks a Split Picture as Profit-Taking Hits the Stock

Nokia shares retreat 9% from 52-week high as profit-taking follows an 88% rally, despite Q1 earnings beating estimates by 31% and AI-driven segment growth of 49%.

Nokia’s share price has cooled sharply after a blistering run, retreating roughly nine percent from its 52-week peak of €11.48 in early May to trade at €10.47. The pullback comes despite first-quarter numbers that, on the surface, looked robust — a classic case of profit-taking after a rally that has delivered an 88 percent gain since the start of the year.

The earnings per share figure blew past analyst estimates by 31 percent, with comparable profit nearly doubling to €295 million from €153 million a year earlier. Yet revenue fell just short of expectations, coming in at $5.27 billion against a consensus of $5.32 billion. In a market that has already priced in a lot of good news, that small miss was enough to trigger selling pressure.

Segment performance was decidedly mixed. Network Infrastructure rose six percent, powered by a 20 percent jump in Optical Networks. The AI and cloud business surged 49 percent and now accounts for eight percent of group revenue. On the flip side, Fixed Networks slumped 13 percent as Nokia continues to prune its portfolio.

Management has held firm on its full-year target of €2 billion to €2.5 billion in comparable operating profit. For the core Network Infrastructure division, the growth forecast has been raised to between 12 and 14 percent in constant currency, with Optical and IP Networks expected to expand by 18 to 20 percent. The second quarter is seen delivering sequential revenue growth of five to nine percent.

That guidance provides a solid tailwind, but the company also warned of headwinds on gross margins in the coming quarters. Semiconductor supply-chain snags remain a live risk that investors cannot afford to ignore.

Wall Street is split on valuation. Argus Research upgraded the stock to Buy with a $15 price target, while CFRA doubled its target to $16, now valuing Nokia alongside faster-growing fiber peers. JPMorgan lifted its target to €12 and Morgan Stanley to €11. A dozen analysts currently recommend buying the shares. But UBS and Goldman Sachs remain on Hold, and Barclays stays bearish with an €8 target — implying significant downside from current levels. That divergence gives institutional investors cover to lock in profits after a three-month run.

Nokia is pushing ahead with its AI-RAN strategy and plans customer trials later this year. Internally, management talks about an “AI super-cycle” and is ramping up investment in optical network capacity accordingly. With free cash flow of €0.6 billion in the first quarter and net liquidity of €3.8 billion, the company has the financial firepower to fund this bet without tapping external capital markets.

To align leadership with shareholder interests, the annual general meeting in April approved a change in compensation: board members will now receive 40 percent of their fees in shares. Board chairman Timo Ihamuotila was already allocated a larger stock package in early May.

The transformation from a cyclical telecom gear maker into an AI infrastructure partner is gaining traction. Whether the current valuation holds will depend on profitability. The fourth quarter needs to deliver the margin improvement that management has promised, and the second-quarter numbers will provide the first real test of the upgraded growth targets.