HELSINKI — Nokia Oyj (HEL:NOKIA) saw its shares decline 1.1% to €8.36 on Thursday, even as the broader Helsinki market edged higher. The OMXH25 index rose 0.6%, highlighting the telecom equipment maker's underperformance amid growing scrutiny of its order conversion prospects.
The stock's dip comes as the company grapples with a substantial backlog of AI and cloud-related orders, which totaled €2.8 billion in the second quarter — equivalent to 6.3 times the quarterly revenue from these clients. While this signals strong demand, it also raises questions about how quickly these orders will translate into actual sales.
Valuation Concerns
Nokia currently trades at a trailing price-to-earnings (P/E) ratio of 65.8, a level that mirrors Arista Networks (NYSE:ANET) at 62.2 but far exceeds Ericsson (STO:ERIC-B) at 12.8. The high multiple reflects market expectations for future growth driven by AI infrastructure spending, but it also leaves little room for disappointment.
The company's reported earnings have been distorted by significant restructuring charges. In the second quarter, Nokia's stated operating margin was minus 1.0%, while its comparable margin stood at 9.0%. This discrepancy underscores the need for investors to focus on underlying performance metrics.
Strong Q2 Results
Despite the valuation concerns, Nokia delivered a solid quarter. Group net sales climbed 8% year-over-year to €4.815 billion, with comparable operating profit advancing 18% to €434 million, surpassing the LSEG consensus of €382 million by 13.6%. Network Infrastructure was the primary growth driver, posting a 12% increase in sales.
AI and cloud customer sales surged 105% to €446 million, representing 9.3% of total group revenue, up from approximately 4.9% a year earlier. This rapid growth underscores the company's strategic pivot toward high-demand areas.
Order Conversion Risks
Chief Executive Justin Hotard highlighted ongoing supply constraints, noting that demand remains strong but supply is the industry's main bottleneck. As capacity tightens, customers are committing to longer-term orders, which is bolstering the backlog but also delaying revenue recognition.
Approximately 50% of the €2.8 billion in AI and cloud orders are expected to convert to revenue within the next 12 months, implying about €1.4 billion — still 3.1 times the quarterly AI and cloud sales. The company projects third-quarter group sales to grow 3% to 7% sequentially, while comparable operating profit is expected to remain roughly flat before a significant jump in the fourth quarter.
Guidance and Outlook
For the full year 2026, Nokia maintains its comparable operating profit outlook of €2.1 billion to €2.6 billion, though it revised the figure by €0.1 billion due to discontinued operations. The company also expects restructuring charges of €800 million and associated cash outflows of €700 million to €800 million.
Analysts remain largely positive, with an average rating of Outperform and a consensus price target of €10.32, implying a 23.4% upside from Thursday's intraday price. However, price targets vary widely, ranging from €4.65 to €18, reflecting uncertainty about the pace of AI-driven growth.
Despite the day's decline, Nokia's stock is up nearly 49% year-to-date, though it remains 44% below its 52-week high of €15. The ex-dividend date passed on July 27, with the €0.04 payment distributed on Thursday, so the drop is not attributable to dividend adjustments.
Investors will be watching closely when Nokia reports third-quarter earnings on October 22, focusing on AI revenue trends, order conversion rates, and margin performance. The key risk is that order growth may not be sufficient to justify the current valuation, especially if supply constraints persist.
