Nokia's AI Growth Story Clashes with Legacy Drag as Shares Slide 22% from Peak

Shares fall to €11.70 as legacy business concerns outweigh AI-driven growth and buy ratings from Bank of America and J.P. Morgan, while bond refinancing extends debt at higher cost.

Two major investment banks have issued buy ratings and raised price targets on Nokia in as many days. The stock has fallen anyway. The Finnish network equipment maker has shed nearly 19% over the past seven trading sessions, dropping to €11.70 on Wednesday — a stark contrast to the analyst optimism swirling around its AI-driven data centre push.

The disconnect is striking. Bank of America lifted its price target from €11.00 to €14.40, citing Nokia's expanding footprint among hyperscalers, while J.P. Morgan reaffirmed its own buy recommendation just a day earlier. Yet sellers have dominated, pushing shares down from a 52-week high of €14.97 hit in early June. The pullback has trimmed the year-to-date advance to 112%, though over the past twelve months the stock still shows a gain of 148% from a trough of €3.49.

Costlier debt, longer runway

Away from the equity market's volatility, Nokia has been quietly reshuffling its balance sheet. The company placed €500 million in unsecured bonds earlier this month, carrying a fixed coupon of 3.625% and maturing in June 2032. Proceeds are being used to retire an existing bond of the same size that matures in May 2028 but pays only 3.125%. The refinancing buys Nokia an extra four years of breathing room — at the cost of half a percentage point more in annual interest expense.

That Nokia encountered no difficulty tapping the European capital markets at these terms suggests bond investors still view the company as creditworthy. The move also signals management's intent to stretch out liabilities well beyond the current AI investment cycle.

AI surge masks old-economy headwinds

Nokia's optical and IP networks division, the main beneficiary of artificial intelligence infrastructure spending, has been firing on all cylinders. Revenues from AI and cloud services jumped 49% in the first quarter, and order backlog in that segment hit roughly €1 billion. Management recently raised its organic growth forecast for the unit from 10–12% to 18–20% for fiscal 2026. The broader operating profit target for that year stands at €2.0–2.5 billion, with ambitions to reach €2.7–3.2 billion by 2028.

Yet AI and cloud revenue still account for only 8% of total group sales. The legacy businesses that make up the rest are dragging on profitability. Fixed-network revenue fell 13% in the first quarter, and analysts worry that shrinking legacy operations will eat into the gains from newer, faster-growing segments. BNP Paribas analyst Jakob Bluestone captured the dilemma: Nokia contains a small growth company — but the old Nokia hasn't vanished.

Strong quarter, uncertain outlook

The headline numbers from the first quarter were solid enough. Group revenue came in at €4.5 billion, while comparable operating profit climbed 54% year-on-year to €281 million, prompting management to raise its full-year guidance. The implied price-to-earnings ratio has more than doubled since January, from roughly 17 to around 36, making the stock vulnerable to profit-taking at the first sign of disappointment.

Competitors Ericsson and Huawei continue to compete fiercely for every infrastructure contract. Whether Nokia can convert its optical wins into sustained market share gains remains an open question. For now, analysts project annual earnings growth of roughly 25% — contingent on execution.

All eyes now turn to 23 July, when Nokia reports second-quarter results. That will be the moment the company must prove its infrastructure unit can consistently offset structural headwinds. Until then, the shares look set to remain hostage to sentiment swings in an already jittery AI trade.