Nokia's €732 Million Cash Drain Overshadows an AI Order Bonanza

Nokia's Q2 profit beat masks €732M cash outflow; AI orders surge but stock drops 30% from peak. Analysts split on recovery.

Nokia's stock is caught in a tug-of-war between a record-breaking AI order book and a balance sheet that just hemorrhaged hundreds of millions of euros in cash. The market has spent the past two months punishing the Finnish telecom equipment maker, and the latest quarterly numbers did little to settle the argument over which force will ultimately win out.

The shares closed Friday at €7.93, roughly flat on the day but down 30 percent from the June peak. The stock touched an all-time high of nearly €15 at the start of June before a brutal sell-off dragged it as low as €7.40. Even after the drubbing, Nokia remains more than 40 percent higher year-to-date — a reminder of just how far the stock had run before the correction set in.

A Profit Beat That Couldn't Mask the Bleeding

On the surface, Nokia's second-quarter results looked encouraging. Comparable operating profit climbed 18 percent to €434 million, comfortably ahead of the €382 million consensus forecast. Revenue in the AI and cloud segment doubled to €446 million, fueled by a fresh wave of orders worth €2.8 billion — a figure that represents 6.3 times that segment's quarterly sales.

Yet investors zeroed in on a far less flattering metric. Reported operating profit swung to a loss of €50 million, and free cash flow collapsed to minus €732 million for the quarter. The first half now shows free cash flow of minus €104 million, a stark reversal from the plus €809 million recorded in the same period last year. Nokia plowed roughly €1.15 billion into working capital during the quarter, including €370 million tied up in inventory. Net liquidity dropped 27 percent in just three months to €2.78 billion.

That disconnect between order growth and cash generation explains why the stock kept sliding even as the company delivered better-than-expected numbers. The market wants to see the AI pipeline convert into actual money, not just bookings.

Analysts Split Over the Path Forward

Wall Street and the City are clearly divided on how to read the situation. Deutsche Bank trimmed its price target on July 27 from €13.50 to €11.50 but maintained a buy rating. Goldman Sachs sits at neutral, while Barclays remains on the cautious side with an underweight call. Bank of America, meanwhile, raised its target from $18 to $18.50, arguing that the record AI order intake outweighs the weaker near-term outlook.

The consensus across 23 analysts points to a 12-month price target of €10.32 — roughly 25 percent above the current level — but the dispersion is striking. Estimates range from a bearish €4.65 to an optimistic €18, underscoring just how unsettled the debate has become.

Institutional positioning tells a similar story. Oaktree Capital Management cut its Nokia stake by 40 percent in the first quarter, leaving the asset manager with 11.2 million shares and dropping the stock to 19th place in its portfolio.

The Order Book as the Bull Case

Optimists anchor their thesis on the AI backlog. Management expects roughly half of the €2.8 billion in second-quarter AI and cloud orders to convert into revenue over the next twelve months — an estimated €1.4 billion, or 78 percent of the segment's annualized second-quarter sales. The company's overall demand pipeline remains substantial, though the timing of revenue, margin, and cash realization lags well behind the booking pace.

The profit outlook is cautiously positive. Nokia guides to comparable operating profit of €2.1 billion to €2.6 billion for 2026, with management leaning toward the upper half of that range. For the third quarter, the company expects revenue growth of 3 to 7 percent sequentially, with operating profit holding steady before a more pronounced pickup in the fourth quarter.

A Valuation That Still Demands Proof

S&P has flagged concerns about margin compression and weaker cash generation in 2026, and the agency wants to see free operating cash flow above €1.3 billion before considering another upgrade. That threshold puts the spotlight squarely on order conversion.

Before the earnings release, the stock was already trading at 25 times expected 2026 earnings. Even after the correction, that multiple remains historically rich, which leaves little room for error. The shares now sit almost exactly on their 200-day moving average of €7.93 — a level that often acts as a battleground between trend followers and value buyers.

Technical indicators suggest the selling pressure may be exhausting itself. The 14-day relative strength index stands at 33.3, approaching oversold territory, while the annualized 30-day volatility of roughly 68 percent reflects just how turbulent trading has been since the June high.

The next major catalyst arrives on October 22, when Nokia reports third-quarter results. Between now and then, the central question is whether the company can turn its bulging order book into the cash flow that would justify a valuation that remains demanding even after the recent slide. The working capital drag that produced that €732 million outflow will need to reverse course — and quickly — for the bulls to regain control.