HELSINKI – Nokia shares ticked higher on Wednesday as investors positioned for the company's upcoming return to the EURO STOXX 50 index, a development that could provide a fresh catalyst for the stock after a recent pullback.
The Finnish network equipment maker's U.S.-listed shares (NYSE:NOK) were trading at $9.96 as of 09:03 EDT, up 0.3% in premarket activity. The modest gain follows a 2.1% decline on Tuesday, when 61.3 million shares changed hands, slightly above the 10-day average but below the three-month average of 92.5 million.
STOXX announced the index review after European markets closed on Tuesday, confirming that Nokia will be added to the blue-chip benchmark before trading begins on September 21. The inclusion is expected to trigger automatic buying from passive funds and institutional portfolios that track the index, potentially providing a short-term boost to trading volumes.
However, the stock's performance in recent weeks suggests that earnings fundamentals, rather than index mechanics, are the primary focus for investors. The ADR remains 7.5% below its 50-day moving average of $10.77, though it sits 4.2% above the 200-day average of $9.56. At current levels, the stock is still 42.9% off its 52-week high of $17.45, but has gained 129% from its low of $4.35.
AI and Cloud Orders Drive Growth
The company's second-quarter results highlighted the growth potential in its AI and cloud segment. Nokia reported €2.8 billion in AI and cloud order intake for the quarter, with CEO Justin Hotard stating that "around half of these orders" are expected to convert to revenue over the next twelve months. He noted that supply constraints, rather than demand, remain the primary limiting factor.
Network Infrastructure revenue increased 12% year-over-year at constant currencies, with Optical Networks surging 20% and IP Networks up 16%. Comparable operating profit for the group rose 18% to €434 million, with the comparable operating margin expanding to 9.0% from 8.3% in the year-ago period.
In a separate announcement, Nokia revealed plans to open a new research facility in Riyadh focused on AI-powered automation and orchestration software. The company did not disclose investment figures or near-term revenue expectations for the project.
Valuation and Risks
Nokia currently trades at approximately 20 times forward earnings, a premium to rivals Ericsson (NASDAQ:ERIC) at 16.1 times and Cisco Systems (NASDAQ:CSCO) at 19.6 times. This valuation leaves limited room for error, and investors will be watching the company's next operational update on October 22.
Management has guided for third-quarter sales to increase 3% to 7% sequentially, with comparable operating profit expected to remain roughly stable before a stronger fourth quarter. Key risks include the potential for passive buying to subside after the index rebalance, order conversion delays due to supply constraints, and headwinds from restructuring charges, currency fluctuations, and reduced carrier spending.
While the September index inclusion may support trading activity in the near term, analysts suggest that sustainable rerating will depend on the company's ability to convert its AI order book into revenue, margins, and cash flow.
