Nokia's AI Momentum Collides With a €732 Million Cash Flow Reality Check

Nokia's AI orders hit record highs, but a €732M cash outflow and 30% stock drop leave investors torn. Can the turnaround hold?

The market is sending Nokia two messages at once, and they could hardly be more contradictory. On one side sits a record-breaking surge in artificial intelligence orders that has analysts reaching for their upgrade pens. On the other, a balance sheet that just hemorrhaged hundreds of millions in cash — and investors are struggling to reconcile the two.

The stock closed Friday at €7.93, essentially flat on the day. That flatness, however, masks a brutal four-week stretch that has wiped roughly 30 percent off the share price since June's peak of €14.97. The decline has been so sharp that the shares now sit almost exactly on their 200-day moving average — a level chart watchers will be monitoring closely in the sessions ahead.

The AI Engine Is Humming

The source of the optimism is hard to argue with. Nokia's second-quarter results, which management framed as a breakthrough in the company's transformation into an AI infrastructure provider, showed the AI and cloud division generating €2.8 billion in new orders. Segment revenue in AI & Cloud more than doubled on a currency-adjusted basis, climbing 105 percent year over year to €446 million.

That order momentum prompted management to nudge its 2026 operating profit guidance higher, to a range of €2.1 billion to €2.6 billion. Comparable operating profit for the quarter came in at €434 million, up 18 percent and comfortably ahead of the €382 million consensus figure analysts had penciled in.

External validation arrived on July 30, when S&P Global Ratings lifted its outlook on Nokia from "Stable" to "Positive" while affirming the 'BBB-' long-term rating. The agency cited the company's successful diversification and suggested an actual upgrade could materialize within 24 months, with Nokia well positioned to ride the wave of cloud giants' infrastructure spending.

The Cash Drain That's Spooking the Market

Yet for all the AI euphoria, the number that has traders reaching for the sell button is a different one entirely. Free cash flow in the quarter came in at minus €732 million, a swing that reflects heavy investment in working capital — roughly €1.15 billion, including €370 million tied up in inventory — plus employee bonus payments carried over from the prior year.

The first-half picture is equally stark: free cash flow of minus €104 million, against a positive €809 million in the same period last year. Net liquidity dropped 27 percent in a single quarter to €2.78 billion. The reported operating result also flipped to a loss of €50 million, a figure that sits awkwardly alongside the robust comparable profit.

Management is taking steps to address the drag. Several peripheral businesses are being reclassified as discontinued operations, including the planned divestments of the Fixed Wireless Access CPE and Enterprise Campus Edge units. Restructuring and integration costs of around €800 million — much of it tied to consolidating the China business — will also weigh on near-term results.

Analysts Split Down the Middle

The sell-side response reflects the fundamental tension in Nokia's story. Deutsche Bank cut its price target on July 27 from €13.50 to €11.50 but maintained its buy recommendation. Goldman Sachs holds a neutral stance, while Barclays sits at underweight. On the bullish side, Bank of America raised its target from $18 to $18.50, arguing that the record AI order book outweighs the weak near-term outlook. JPMorgan, meanwhile, lifted its price target on the NYSE-listed shares to $21.

Institutional positioning tells a similar story of divergence. Oaktree Capital Management trimmed its Nokia stake by 40 percent in the first quarter, leaving it with 11.2 million shares and dropping the stock to 19th place in the firm's portfolio.

A Technical Picture in Flux

The chart offers little clarity. The 14-day relative strength index sits at 33.3, flirting with oversold territory, while the annualized 30-day volatility of 68.44 percent underscores just how whipsawed sentiment has become. The 200-day average at €7.93 is providing support for now, but the stock would need to reclaim the 50-day level of €11.21 to signal a return to the medium-term uptrend.

The longer-term numbers remain impressive — the stock is up 121 percent over 12 months — and the consensus rating among major houses is still "Moderate Buy." But with the next dividend payment due on August 6, the immediate question for investors is whether the working capital drag normalizes quickly enough to justify the AI premium the market had been assigning to the stock. The answer will determine whether this sell-off was an overreaction or the start of something more prolonged.