Nokia's Pre-Earnings Rally Masks a Deeper Margin Anxiety as Ericsson's Cost Warning Lingers

Nokia shares bounce from oversold levels after SEB Equities upgrades to Buy with €12 target, citing AI-RAN platform and software pivot, but margin concerns linger.

Nokia shares climbed 5.65 percent on Tuesday to close at €9.39, snapping a brutal stretch that had wiped more than a quarter off the stock over the preceding 30 days. The bounce came courtesy of an upgrade from SEB Equities, which raised its rating to "Buy" with a €12.00 price target — a bullish call timed just 48 hours before the Finnish telecom equipment maker delivers its half-year results on July 23.

The SEB analysts see Nokia pivoting from a hardware-centric business to a software and AI infrastructure play, a thesis bolstered by the company's recent commercial launch of an AI-RAN platform developed in partnership with Nvidia. The system promises to more than double spectral efficiency by 2028 through software alone, without requiring operators to swap out radio hardware. That product, combined with a landmark project completed on July 21 to virtualize the entire subscriber data management platform for Jazz, Pakistan's largest mobile operator, forms the backbone of SEB's conviction.

Nokia's CTO Pallavi Mahajan framed the Jazz migration as proof that the company now operates "at the speed of software," enabling network capacity expansion without expensive hardware replacements. The project ran without disrupting live customer operations, giving Nokia a reference case it can shop to other operators facing similar legacy infrastructure constraints.

Yet for all the narrative momentum around software-defined networks and AI-optimized radio, the stock's technical picture tells a more cautious story. Tuesday's rally came from deeply oversold territory — the relative strength index sat at 37.5, barely above the 30 threshold that typically signals a bearish extreme. On a weekly basis, the shares still trade 9.6 percent lower, and the 52-week high of €14.97, set on June 3, now looks distant at roughly 37 percent above current levels. The annualized volatility stands at 67 percent.

The Ericsson Overhang

A significant portion of Nokia's recent weakness traces back to its Swedish rival. Ericsson reported second-quarter results on July 14 that, while showing operational discipline and stable margins, triggered a pre-market sell-off of 8.7 percent. CFO Lars Sandström pointed to rising component costs and chip inflation as a growing industry headwind. That warning has spilled directly onto Nokia: over the past week, the Finnish company's shares underperformed Ericsson by 5.2 percentage points and trailed the OMXH25 index by 18.7 points, a divergence that market observers interpret as investors pricing in a sector-wide margin squeeze.

The consensus heading into Thursday's report calls for revenue growth of 7.2 percent quarter-on-quarter, but gross margin is expected to contract by 80 basis points to 44.7 percent. Analysts across the board emphasize that margin trajectory — not top-line expansion — will determine the stock's reaction. The calculus is straightforward: if Nokia can demonstrate that its shift toward software and AI services is insulating profitability from component inflation, the SEB upgrade may prove prescient. If margins disappoint, the Ericsson playbook of cost warnings could replay in Helsinki.

What the Numbers Must Show

Currency effects are unlikely to muddy the picture this time. The euro-dollar exchange rate stood at 1.1439 on Friday, just 0.5 percent below Nokia's planning assumption, leaving the earnings outcome almost entirely dependent on component costs and product mix.

The company's AI and cloud business offers a potential bright spot. In the first quarter, revenue from that segment surged 49 percent, accounting for 8 percent of group sales, with customer orders reaching €1 billion. CEO Justin Hotard raised the growth outlook for the Optical and IP Networks divisions in April, and the pipeline of AI-network contracts will be closely scrutinized for signs of acceleration or deceleration.

Still, the structural headwind facing the entire telecom equipment industry remains formidable. Traditional 5G capital expenditure by network operators is mired in a cyclical trough, a dynamic Ericsson has already flagged as a drag. Nokia's ability to decouple from that cycle depends on whether its software-defined, AI-optimized offerings can command premium pricing and recurring revenue streams — a transition that Thursday's half-year report will test with hard numbers rather than strategic vision.

The stock has recovered from oversold levels before, only to give back gains when the fundamental picture failed to match the narrative. This time, the margin data will decide whether the bounce has legs or whether the €12.00 target remains a distant aspiration.