Nokia Oyj (HEL:NOKIA) experienced a decline in its stock price on Monday, falling 1.85% to €8.07 by mid-morning in Helsinki. The drop was partially attributed to the stock trading ex-dividend by €0.04, but broader investor unease centered on the company's cash flow trajectory despite a surge in artificial intelligence-related orders.
The Finnish telecommunications equipment maker reported a robust second quarter, with comparable operating profit climbing 18% to €434 million, surpassing analyst expectations of €382 million. Sales advanced 8% to €4.815 billion, driven largely by a 100% increase in AI and cloud revenue to €446 million. However, the market's focus has shifted from order wins to the financial implications of fulfilling those orders.
AI and cloud orders totaled €2.8 billion, representing 6.3 times the segment's quarterly sales. While this underscores strong demand, it also raises concerns about working capital requirements. Initial midpoint estimates suggest Nokia needs to generate approximately €1.63 billion in free cash flow in the second half of the year to meet its full-year guidance. This is roughly 2.4 times the company's estimated result for the latter half of 2025 and compares to €1.5 billion in free cash flow for the full year 2025.
The cash flow strain was evident in the second quarter, with free cash flow coming in at negative €732 million. Working-capital outflows totaled €1.15 billion, driven by increased inventories and receivables. Net cash declined 27% from the prior quarter to €2.776 billion. The company also posted a €50 million operating loss for the period, impacted by €390 million in restructuring charges.
Despite the strong order intake, AI and cloud clients accounted for just 9.3% of Nokia's group revenue in the quarter, though they contributed roughly 61% of the company's annual revenue growth. This heavy reliance means there is less flexibility for postponed shipments, as delays could significantly impact cash flow. Chief Executive Justin Hotard noted that "demand is still strong, but supply remains the primary constraint facing the industry." Extended commitments increase visibility but also require maintaining higher inventory levels before receiving payment.
Nokia's stock underperformed the broader market, as the STOXX 600 gained 0.8% earlier in the day. Peer comparisons offer little solace, with Ericsson (STO:ERIC-B) cautioning that higher memory-chip prices are squeezing margins on equipment, reinforcing the industry-wide supply constraints.
The company's headline guidance boost, adjusted to €2.1 billion–€2.6 billion following the reclassification of two units as discontinued operations, does not provide significant new insight on demand. Nokia stated its operational view has not changed, and execution remains weighted towards the later part of the year. Comparable operating profit is expected to remain roughly unchanged in the third quarter before a significant uptick in the fourth quarter, with sequential sales growth of 3% to 7% predicted for Q3.
Nokia is set to announce its third-quarter results on October 22. Investors will likely focus on receivables, inventory levels, and the conversion of AI orders, which could prove more significant than a new headline order number. Risks include accelerated customer payments potentially offsetting working-capital pressure, but also threats from shipment hold-ups, higher component costs, or softer cloud demand.