Nokia Stock Retests the Support as Legacy Business Weakness and AI Bubble Concerns Pressure the Outlook
Nokia's recovery is losing momentum as concerns over AI-driven valuations, weakening legacy businesses, and execution risks continue to overshadow its long-term growth ambitions.
Quick overview
- Nokia's stock is under pressure due to concerns over AI valuations and weakening legacy businesses, despite broader market optimism.
- The company is investing $30 million to expand its photonic chip operations, aiming to capitalize on AI infrastructure demand.
- While Nokia's AI-related sectors are growing, challenges in its traditional operations raise questions about long-term earnings stability.
- Elevated investor expectations and competition in the networking space may lead to continued volatility in Nokia's stock performance.
Nokia’s recovery is losing momentum as concerns over AI-driven valuations, weakening legacy businesses, and execution risks continue to overshadow its long-term growth ambitions.
Rally Loses Steam Despite Broader Market Optimism
Nokia shares remained under pressure even as broader equity markets advanced following improved geopolitical sentiment surrounding the Iran agreement. While easing tensions encouraged investors to rotate back into risk assets, Nokia failed to participate meaningfully in the technology rally as profit-taking and valuation concerns continued to dominate trading.
After climbing to around $15 earlier this month, the stock quickly lost momentum, highlighting increasingly fragile investor confidence following its strong rally over the past year. The recent weakness suggests markets are becoming more selective, rewarding companies with stronger earnings visibility while scrutinizing those undergoing significant business transitions.
Expansion Strategy Offers Long-Term Promise but Not Proof
Nokia is aggressively repositioning itself to capitalize on the next wave of artificial intelligence infrastructure spending as traditional telecom equipment demand remains subdued.
The company recently announced plans to expand its advanced photonic chip testing and packaging operations in Allentown, Pennsylvania. The $30 million investment, supported by state incentives and federal CHIPS tax credits, is expected to nearly double the site’s workforce to more than 500 employees while increasing production capacity by as much as tenfold before the end of the third quarter.
Photonic chips play a critical role in AI infrastructure by transmitting enormous volumes of data through optical networks. As hyperscale data centers continue expanding, demand for high-speed optical connectivity is expected to grow substantially.
Chief Executive Officer Justin Hotard described the investment as a direct response to changing infrastructure requirements, stating that the AI investment cycle is fundamentally reshaping global networking demand.
The expansion reinforces Nokia’s strategy of reducing its dependence on traditional telecom carrier spending while strengthening its presence in cloud networking, optical infrastructure, and AI-driven data center technologies.
Optimism Meets Valuation Reality
Although Nokia has benefited significantly from enthusiasm surrounding artificial intelligence infrastructure, investor sentiment has become increasingly cautious.
For much of the past year, markets rewarded companies expected to benefit from expanding AI data center investment, driving substantial gains across networking, semiconductor, and cloud infrastructure providers. Nokia emerged as one of the key beneficiaries because of its growing position in optical networking solutions.
However, investors are now questioning whether the enormous capital being committed to AI infrastructure will ultimately generate returns sufficient to justify elevated valuations.
As concerns over a potential AI-driven market bubble continue to grow, investors have become increasingly willing to lock in profits, particularly in companies whose recent share price gains have been fueled more by future expectations than near-term earnings acceleration.
Legacy Operations Continue to Weigh on Sentiment
While Nokia’s AI-related businesses continue expanding, weakness across its traditional operations remains a significant concern.
The company’s most recent quarterly results exceeded overall earnings expectations, but revenue from its Fixed Networks division declined by 13%, underscoring the ongoing challenges facing several mature segments of the business.
Management continues shifting resources toward higher-growth cloud infrastructure, optical networking, and enterprise connectivity solutions. Nevertheless, investors remain uncertain whether growth in these emerging businesses can consistently offset declining demand across legacy operations.
This balance between old and new businesses remains one of the biggest questions surrounding Nokia’s long-term earnings trajectory.
Expansion Creates Both Opportunity and Execution Risk
Nokia continues implementing several strategic initiatives designed to strengthen its competitive position.
The integration of Infinera is progressing ahead of schedule, expanding Nokia’s presence in optical networking and cloud infrastructure markets. At the same time, the company has agreed to divest its fixed wireless access equipment business to Inseego, allowing management to focus more heavily on higher-margin networking technologies.
While these moves strengthen Nokia’s long-term strategy, they also introduce meaningful execution risks.
Large acquisitions, manufacturing expansion, business divestitures, and operational restructuring require significant investment and flawless execution. Any delays in integration, slower customer adoption, or unexpected cost overruns could weigh on earnings and prolong investor skepticism.
Nokia Chart Daily – The 20 SMA Has Turned Into Support
Nokia shares have been trading up since August last year, when the price fell below $3.50, and in early June it reached $15. Moving averages have been acting as support during pullbacks, helping keep the trend bullish. We saw a dip below $7 in late March, but the sentiment improved, with last week’s earnings helping investors, and Nokia shares extended the upside to $15 last week with the help of the 20 daily SMA. However we saw a pullback and the 20 SMA was broken which turned into resistance after the stock climbed in the last three days and rejected the price on Monday.
Elevated Expectations Leave Limited Margin for Error
Following its impressive rally over the past year, Nokia now faces much higher expectations from investors.
Competition within networking equipment and cloud infrastructure continues intensifying as industry rivals increase investment to capture a greater share of AI-related spending. At the same time, elevated valuations have reduced investors’ willingness to overlook operational challenges or slowing growth within mature business segments.
Although Nokia remains well positioned to benefit from long-term expansion in AI infrastructure, cloud networking, and optical connectivity, recent trading illustrates that markets are increasingly demanding tangible financial results rather than future promises.
Until management demonstrates that growth in its higher-margin AI and networking businesses can consistently offset declines across its legacy operations while successfully executing its strategic transformation, Nokia shares may remain vulnerable to continued volatility and periodic bouts of profit-taking despite an otherwise constructive outlook for the broader technology sector.
Nokia Q1 2026 Earnings Highlights
Operating Profit Beat:
- Comparable operating profit came in at €281 million
- Up 54% year-over-year, beating the €250 million consensus
Revenue Growth:
- Total net sales reached €4.5 billion
- Representing a 4% annual increase
- Reported revenue of $5.27 billion, well above the $4.59 billion forecast
Earnings Per Share:
- EPS came in at $0.06, matching expectations
- Cloud and Tech Segment Driving Growth
- Revenue from technology and cloud customers surged 49%
- Nokia secured €1 billion in new cloud contracts during the quarter
- Book-to-bill ratio exceeded 1.0, signaling strong future demand
This highlights a clear shift toward higher-growth, higher-margin segments, particularly cloud infrastructure and enterprise solutions.
Key Takeaways
- Strong profit growth outpaced revenue, indicating improved margins
- Cloud momentum is becoming a core driver of performance
- Solid order intake and backlog support forward visibility
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