AI data center business becomes a new growth engine, Nokia (NOK.US) Q2 profit far exceeds expectations

According to Zhitong Finance APP, Nokia (NOK.US) reported second-quarter profits that far exceeded market expectations, as the Finnish communications equipment manufacturer intensified its focus on the data center hardware business, which boosted sales growth. On Thursday, Nokia announced that net sales for the second quarter increased by 8% year-on-year to EUR 4.8 billion, in line with analysts' expectations; adjusted operating profit grew 18% year-on-year to EUR 434 million (approximately USD 496 million), compared to analysts’ average estimate of EUR 372.3 million.

Data shows that at constant exchange rates, sales for Nokia's Network Infrastructure division—which covers AI data center connectivity—increased by 12% year-on-year to EUR 2.037 billion in the second quarter. Specifically, optical networks sales grew by 20%, and IP networks sales grew by 16%. Net sales to AI and cloud customers surged by 105%.

Sales for the Mobile Networks division, which covers traditional mobile device business, rose by 7% year-on-year to EUR 2.68 billion.

AI Infrastructure Boom Arrives: Nokia Continues to Advance Strategic Transformation

Nokia's CEO Pekka Lundmark is driving business diversification, aiming to move beyond a heavy reliance on traditional telecom network equipment and seize the opportunities brought by the large-scale construction of data centers amid the artificial intelligence (AI) wave. He announced this transformation plan last year, along with a simultaneous organizational restructuring, the divestiture of loss-making units, and a commitment to achieve double-digit operating profit growth over the coming years. The company’s share price has risen 66% so far this year.

In the second-quarter financial report, Lundmark said, “In Q2, our AI and cloud business order intake reached EUR 2.8 billion, while sales more than doubled year-on-year. The company’s growth momentum is being fully unleashed, with both optical and IP networks securing long-term orders. We expect that about half of these orders will translate into actual revenue over the next 12 months. Market demand remains robust, but supply chain shortages are still a key bottleneck for the entire industry, prompting customers to place more long-term orders.”

Although the AI boom has opened new avenues for growth, the global rush to build new data centers and expand computing capacity has led to shortages of core components such as memory chips and continued increases in raw material costs. Rival Ericsson warned last week that rising costs would dent profit margins and make fulfilling new customer orders more expensive.

Nokia stated that it has agreed to acquire NXP Semiconductors' chip manufacturing facility in Chandler, Arizona, USA, but the deal is still subject to regulatory approval. Starting in early 2027, Nokia will lease part of the facility's capacity and later upgrade the production lines specifically for manufacturing optical communication components to support AI data center chips.

In recent years, this Finnish company has continuously expanded its U.S. manufacturing capacity, focusing on high value-added telecom components and semiconductor products. This strategy has helped the company secure federal funding under the U.S. CHIPS Act, while also strengthening its supply chain resilience.

As part of a large-scale cost-cutting restructuring plan, Nokia is laying off staff in Europe to save up to EUR 1.2 billion this year. The company disclosed that the European layoffs will incur restructuring costs of EUR 200 million.

Nokia is also leveraging AI technology to improve equipment efficiency. Last week, the company, together with chip giant Nvidia, jointly released new technology that could allow wireless operators to double data throughput in the same radio spectrum bands. The platform is scheduled for launch next year and will be compatible with existing 4G and 5G networks; after the next-generation 6G standard is finalized, devices will be upgradeable via software updates to match the new standards.

This means cost-sensitive telecom companies can virtually upgrade their networks without replacing expensive hardware. Lundmark stated that he hopes the software subscription model will become the main driver of the company’s Radio Access Network business in the future. Last year, Nvidia invested $1 billion in Nokia.