Nokia Corporation (NYSE: NOK) saw its American Depositary Receipts (ADRs) decline 2.9% on Tuesday, trading at $9.845 by 10:53 a.m. EDT, as the market's focus shifted from the company's AI-driven growth narrative to the execution challenges that lie ahead.
The decline, which left Nokia underperforming rival Ericsson (NASDAQ: ERIC) by 2.2 percentage points, comes despite the opening of a new research center in Riyadh, Saudi Arabia, dedicated to AI-driven network automation. The facility, announced earlier in the day, will focus on developing software for self-configuring and self-healing networks, but Nokia provided no details on investment, staffing, or revenue targets.
Investors are increasingly scrutinizing Nokia's ability to convert its substantial order backlog into tangible financial results. In the second quarter, the company reported a 105% year-over-year surge in AI and cloud sales, with order intake reaching €2.8 billion, primarily driven by optical and IP networks. However, the company's comparable operating margin stood at just 9.0%, while its reported operating margin was negative 1.0%, impacted by accelerated restructuring charges. Free cash flow also remained deeply negative at €732 million.
Chief Executive Justin Hotard has stated that roughly half of the AI orders are expected to convert to revenue within the next 12 months, citing supply constraints as the industry's primary bottleneck. This timeline makes execution a key metric for investors to monitor.
Analyst consensus, based on surveys conducted after the second-quarter report, projects comparable operating profit of €2.40 billion for the full year, with a range of €2.305 billion to €2.523 billion. This forecast sits comfortably within Nokia's own guidance of €2.1 billion to €2.6 billion.
The new Saudi center, while expanding Nokia's software footprint and supporting research into service orchestration, self-organizing networks, and 6G, does not alter these estimates in the absence of commercial targets.
Broader market weakness also weighed on the sector. Arista Networks (NYSE: ANET) fell 2.3%, Cisco Systems (NASDAQ: CSCO) declined 1.2%, and Ericsson slipped just 0.7%. Nokia's ADR volume was notably elevated, with approximately 17.7 million shares changing hands by mid-morning, a 37% increase compared to the same time on Monday.
Looking ahead, the next major test for Nokia comes with its third-quarter results. The company expects sequential sales growth of 3% to 7%, with comparable operating profit expected to remain broadly flat before a more significant increase in the fourth quarter. The key risks remain faster-than-expected order conversion, which could boost sales and margins, versus potential supply chain disruptions, higher restructuring costs, or weak telecom spending that could keep cash generation below the comparable profit measure.
