Nokia's Paradox: AI Orders Double and Guidance Rises, Yet the Bottom Line Keeps Bleeding

Nokia posts strong AI-driven revenue growth and raises 2026 guidance, but restructuring charges and negative free cash flow weigh on profitability.

There is a strange disconnect playing out at Nokia right now. The Finnish telecom equipment maker is posting accelerating growth in its AI-focused business, raising its full-year profit guidance, and trimming its capital spending plans — all while the share price slides and the income statement sinks into the red.

The second-quarter numbers tell the story of a company caught between two very different realities. On the surface, the operational picture looks encouraging: revenue climbed 8 percent to €4.815 billion, and operating profit jumped 18 percent to €434 million, putting the operating margin at 9 percent. On a currency-adjusted basis, sales were up 9 percent to €4.82 billion. Yet the reported net result was a loss of €50 million, with net income collapsing 95 percent year over year to just €5 million. Earnings per share rounded to zero.

The Restructuring Tab Comes Due

The gap between operational progress and actual profitability traces back to one thing: the cost of Nokia's own transformation. The company is now budgeting around €800 million in restructuring charges for 2026, part of a broader program targeting savings of €800 million to €1.2 billion. But those efficiencies take time to materialize, and the bill comes due first.

The strain is visible in the cash flow statement. Free cash flow for the quarter came in at minus €732 million — a figure that underscores how the company's substance is shrinking in the short term while investors wait for the structural payoff.

The restructuring effort is also broadening. Beyond the core program, Nokia has launched additional initiatives, particularly in Europe, that will add another €200 million in costs this year. On top of that, the integration of the China business is expected to generate around €350 million in charges through the end of 2026, with the entire process slated for completion within two years.

Part of the strategy involves shedding non-core assets. Nokia has classified its Fixed Wireless Access CPE and Enterprise Campus Edge divisions as discontinued operations and reached an agreement to sell the FWA business to Inseego. The message is clear: less periphery, more focus on networks and artificial intelligence.

The AI Bet Takes Shape

The clearest evidence of where Nokia is headed came in the order book. Incoming orders in the AI & Cloud segment reached €2.8 billion during the quarter, with segment revenue more than doubling year over year. Management responded by lifting its 2026 operating profit guidance to €2.1 billion to €2.6 billion while simultaneously trimming capital expenditure plans to €800 million to €900 million.

For the third quarter, the company expects revenue to grow 3 to 7 percent sequentially, though operating profit is likely to remain roughly flat due to the timing of software revenue recognition.

The hardware side of the AI push is also advancing. In mid-July, Nokia launched what it describes as the industry's first commercial AI-RAN platform built on its AI-native anyRAN architecture. The new factory in San Jose is set to ramp up in the fourth quarter of 2026, while capacity for advanced testing and packaging at the Pennsylvania site will increase tenfold starting in the third quarter. These are the kind of investments that underpin the broader AI infrastructure boom in data centers and mobile networks.

A Market That Isn't Impressed

None of this has been enough to support the share price lately. The stock trades at €7.98, down 0.25 percent on the day and off 8.28 percent over the past seven trading sessions. Reports indicate the shares have now fallen for four consecutive sessions on the New York exchange, a pattern mirrored in Europe. Over the past 30 days, the decline totals 22.26 percent.

The longer-term picture offers some perspective. The stock remains up 42.75 percent since the start of the year — the secondary report puts the year-to-date gain at 43.04 percent — a reminder that the recent weakness follows a powerful rally. But from the record high of €14.97 reached on June 3, the shares have fallen nearly 47 percent, reflecting how dramatically market expectations have shifted. The stock now sits 46.59 percent below its 52-week high.

Even the dividend decision of €0.04 per share, approved just over three weeks ago, failed to stem the selling — the stock has dropped 7.1 percent since that announcement.

Nvidia's Stake Remains a Touchstone

For many investors, the anchor point remains Nvidia's entry into Nokia's shareholder register. The chip giant invested roughly $1 billion in October 2025 at a price of $6.01 per share. That stake is still widely viewed as a vote of confidence in Nokia's long-term strategic direction, even if the current quarter's results demonstrate that the journey involves painful transitional phases.

Analyst sentiment is split. SEB Equities upgraded Nokia from Hold to Buy about four weeks ago, while Deutsche Bank trimmed its price target shortly afterward without abandoning its buy recommendation. Both assessments predate the latest quarterly figures, meaning they don't fully reflect the current information set.

The central question for shareholders now is whether the cost-cutting measures will translate into a stabilization of net income in the coming quarters. Until then, the tension between operational momentum and weak reported earnings will remain the defining feature of Nokia's investment case — a company making itself smaller to become bigger, betting that the market will eventually reward the math.