Nokia (HEL:NOKIA) closed Friday at €7.958, marking a 3.2% weekly decline and a 13.2% drop since July 22, ahead of its second-quarter earnings release. The stock's slide came despite a clear earnings beat, highlighting investor skepticism about the sustainability of its AI-driven growth.
The company reported comparable operating profit of €434 million, up 18% year-over-year and surpassing the LSEG consensus by €52 million. However, the reported operating result swung to a €50 million loss due to accelerated restructuring charges, a stark contrast to the €147 million profit in the same period last year.
AI and Cloud: The Growth Engine
AI and cloud net sales surged 105% to €446 million, contributing an estimated 62% of the group's €367 million sales increase. This concentration raises the bar for execution, as CEO Justin Hotard noted that about half of the €2.8 billion in AI and cloud orders should convert within twelve months. "Demand remains strong, while supply continues to be the main industry constraint," Hotard said.
The group's comparable net sales rose 8% to €4.815 billion, while the comparable gross margin expanded by 70 basis points to 46.0%. Comparable diluted EPS jumped 75% to €0.07. However, the reported profit for the period plummeted 95% to just €5 million, underscoring the impact of restructuring.
Cash Flow Concerns Weigh
Nokia expects €800 million in restructuring charges this year, with related cash outflows of €700-800 million. This burden has shifted investor focus to free cash flow, a key metric for assessing the company's financial health. Management raised its full-year comparable operating profit guidance to €2.1-2.6 billion, but called the €100 million increase a technical revision, leaving the underlying outlook unchanged.
For Q3, Nokia guided for net sales up 3-7% quarter-on-quarter, implying €4.96-5.15 billion, with comparable operating profit largely flat from Q2. This suggests the comparable operating margin could slip below 9%, reflecting higher sales without a matching profit increase.
Relative Underperformance
Nokia's stock declined 3.2% last week, while rival Ericsson (STO:ERIC-B) gained 2.5% and the OMX Helsinki 25 rose 0.3%. Ericsson had previously warned that AI demand was lifting memory costs, pressuring the wider industry. CFO Lars Sandström noted the build-out was impacting the supply chain.
Nasdaq Helsinki reopens Monday at 10:00 EEST, with Nokia's €0.04-per-share dividend due Thursday. The next scheduled results arrive October 22.
Risks and Outlook
Key risks include supply delays that could slow order conversion, component inflation, tariffs, and currency swings that may squeeze margins. Restructuring could also absorb more cash than planned. The near-term test is simple: Nokia must turn its AI orders into reported profit and cash. The 13% post-results fall shows investors still want that proof.