Nokia Returns to Profit as AI Demand Accelerates Growth
Nokia Oyj reported a strong turnaround in the first quarter, returning to profitability as demand for optical networking and AI-driven infrastructure surged. The company maintained its full-year outlook, with shares jumping more than 9% following the announcement.
Financial Performance Shows Strong Recovery
Nokia posted a net profit of €87 million, compared to a loss of €60 million during the same period last year. Comparable net sales increased 4% year-on-year, reaching €4.5 billion on a constant currency basis, slightly below market expectations.
Operating performance improved significantly, with comparable operating profit rising 54% to €281 million. The operating margin climbed to 6.2%, up from 4.2% a year earlier, surpassing consensus forecasts. Adjusted gross margin also exceeded expectations, coming in at 44.2%.
Growth Driven by Optical Networks and AI
The company’s Network Infrastructure segment recorded a 6% organic revenue increase, supported by a 20% surge in Optical Networks. Mobile Infrastructure also delivered modest growth of 3%.
AI and cloud-related revenue stood out, jumping 49% and accounting for 8% of total group sales. Orders from AI-focused clients reached approximately €1 billion during the quarter, highlighting the growing importance of artificial intelligence in Nokia’s business strategy.
CEO Highlights AI “Supercycle” Momentum
Chief executive Justin Hotard emphasized that demand linked to the AI “supercycle” is accelerating. This trend is driving increased investments in both optical and IP network infrastructure.
Upgraded Market Growth Forecasts
Nokia revised its total addressable market (TAM) growth expectations higher across nearly all segments. The company now expects its AI and Cloud TAM to expand at a 27% compound annual growth rate between 2025 and 2028, up from the previous estimate of 16%.
Network Infrastructure growth projections were also raised to 12–14%, compared to the earlier 6–8% forecast. Optical and IP networks are now expected to grow between 18–20%, significantly higher than previous estimates.
Outlook and Guidance
Nokia reaffirmed its full-year comparable operating profit guidance of €2.0 billion to €2.5 billion, noting that performance is currently tracking slightly above the midpoint.
For the second quarter, revenue is projected to grow between 5% and 9% quarter-on-quarter. However, operating profit is expected to represent just 12–16% of the full-year total, indicating a figure below market expectations for the period.
Analyst Reaction and Market View
Barclays described the quarter as broadly neutral, citing weaker-than-expected second-quarter profit guidance. While acknowledging Nokia’s strategic shift toward AI, the firm noted limited short-term upside in its mobile segment, despite ongoing AI RAN trials.
Cash Flow and Near-Term Challenges
Free cash flow turned negative at €353 million, compared to a positive €629 million in the previous quarter. While second-quarter revenue guidance suggests potential upside, the outlook for operating profit indicates a notable shortfall relative to expectations.
