Nokia's AI Orders Surge as Cash Takes the Strain in Q3

Nokia’s Q3 profit beat estimates as AI & Cloud sales more than doubled, but heavier restructuring and a lower cash target left investors weighing what that growth will cost.

Key Takeaways

• Comparable operating profit rose 35% to €605 million, a third above the €453 million consensus, as comparable margin widened 220 basis points to 11.7% on stronger network sales.
• AI & Cloud sales jumped 123% to €631 million and orders reached €1.5 billion, while sales to telecom operators, still 71% of revenue, were flat at constant currency.
• Nokia cut its 2026 cash conversion target to 35% to 55%, raised restructuring charges to €1.1 billion and will add €400 million of working capital to secure supply for 2027.

A Quarter That Settled One Question

For most of 2026, the debate around Nokia has come down to a single question. Investors have wanted to know whether the company’s AI order book would turn into revenue and profit fast enough to justify a rerating that had already happened. The third-quarter report, published in Espoo on October 22, answered that more convincingly than many expected. Net sales rose 10% to €5.154 billion, or 9% at constant currency. Comparable operating profit climbed 35% to €605 million, a third above the €453 million average in a company-compiled analyst poll. Comparable operating margin widened 220 basis points to 11.7%, and comparable diluted earnings per share rose 50% to €0.09.

The improvement came from one clear place. Network Infrastructure sales grew 15% at constant currency to €2.158 billion, driven by a 43% increase in IP Networks and 18% growth in Optical Networks. Sales to AI & Cloud customers rose 123% to €631 million, roughly an eighth of group revenue. Orders from the same customers rose 118% to €1.5 billion, or about €2.40 of new business for every euro shipped. That ratio tells investors the backlog is still growing faster than Nokia can deliver against it. Management was confident enough to look into next year, guiding for combined Optical and IP Networks growth of 25% to 30% in 2027.

Growth Arrives From One Direction

The headline numbers hide how narrow the base of that growth has become. Sales to telecommunications providers were €3.64 billion, still about 71% of revenue, and they were flat at constant currency. Fixed Networks fell 22% as Nokia deliberately stepped back from lower-margin broadband equipment. Core Software declined 13%, which the company attributed to applications it is de-emphasizing and to tight supply of server infrastructure. Nearly all of the group’s incremental revenue now depends on hyperscale and AI infrastructure spending. Much of that spending is in the Americas, where Network Infrastructure sales rose 23% at constant currency.

Mobile Infrastructure showed steadier operational progress. Sales grew 5% to €2.902 billion, and the segment’s operating margin improved 160 basis points to 14.5%. Three things helped: product mix, lower selling and administrative costs, and €425 million from Technology Standards, the patent licensing business. Radio Networks grew 10%. Nokia acknowledged that part of that gain was revenue pulled forward from the fourth quarter, which flatters this quarter at the expense of the next one. Within Network Infrastructure, gross margin slipped 150 basis points to 41.2%. New AI & Cloud products in IP Networks are still in an early, less efficient phase of production. Nokia expects margins to recover in the fourth quarter as volumes rise and pricing holds.

The Price of Building Ahead

Below the comparable line, the results were weaker. Reported operating profit fell 22% to €196 million, a 3.8% margin, after €357 million of restructuring and associated charges, up from €44 million a year earlier. Nokia has widened its programs to simplify operations and shrink its location footprint. It now expects €1.1 billion of restructuring charges for 2026, with related cash outflows of €800 million to €900 million. Free cash flow was negative €99 million in the quarter and negative €205 million for the first nine months. Net cash fell by €192 million to €2.584 billion.

The more significant change was to cash conversion. Nokia lowered its 2026 assumption for free cash flow to 35% to 55% of comparable operating profit. It said it will put an additional €400 million into working capital this year to secure components and capacity for 2027. The balance sheet already shows the effect: inventories reached €2.88 billion at the end of September, up from €2.21 billion at the start of the year. That leaves a large task for the final quarter. If full-year comparable operating profit comes in near €2.4 billion, the new range requires fourth-quarter free cash flow of roughly €1.0 billion to €1.5 billion. Nokia reduced its capital expenditure guidance to €750 million to €850 million. It said its optical manufacturing expansion remains on schedule and that only the timing of payments has moved.

Optical Today, Radio Tomorrow

The case for spending ahead of demand rests on contracts and partnerships built up through the year. In September, Google announced at least €13 billion of investment in Finnish digital infrastructure across 2027 and 2028, its largest single commitment in Europe. Nokia is among the partners supplying optical and IP connectivity. Chief Executive Justin Hotard pointed to that relationship on Thursday as a model for how Nokia intends to work with hyperscalers. He also said the Infinera integration will be complete by the end of 2026, a year ahead of plan, with €200 million of net synergies. The portfolio continues to narrow. Inseego completed its acquisition of Nokia’s fixed wireless access business on October 1, and on October 13 Nokia agreed to sell Enterprise Campus Edge to AURELIUS.

Mobile networks are the longer horizon. Nokia is developing AI-RAN with NVIDIA, which agreed last year to invest $1 billion in the company. AI-RAN is an architecture that runs radio processing and AI workloads on shared accelerated computing. Nokia said it had completed, with T-Mobile and NVIDIA, the first AI-RAN call on a live operator network.

What Investors Are Now Weighing

The market’s response was restrained. Nokia shares traded about 2% lower on Thursday, according to market reports, a modest pullback from a gain of roughly 48% so far this year. The reaction repeated a pattern from July, when the stock fell after the second-quarter report as negative free cash flow overshadowed record AI orders. Earlier this month, the shares stood more than a third below their 52-week high of €15. Investors are no longer debating whether Nokia has a role in AI infrastructure. They are judging how much of the balance sheet the company will commit to that role, and how long it will take for the cash to come back.

Nokia kept its full-year guidance for comparable operating profit of €2.1 billion to €2.6 billion and said it expects to finish above the midpoint. That requires fourth-quarter comparable operating profit of more than €1.0 billion, on a sequential sales increase of 20% to 24%. The Board also declared a dividend of €0.03 per share, payable on November 5. The January 28 report will test three things together:

• whether Radio Networks can absorb the revenue it borrowed from the fourth quarter;
• whether Network Infrastructure margins recover as promised;
• whether working capital begins to release cash.

Nokia has shown that its exposure to AI demand is real and growing. It has not yet shown that this growth can pay for itself.