AI infrastructure boom drives demand growth! Nokia (NOK.US) Q3 operating profit exceeds expectations, optical network business sales up 18% year-on-year

According to Zhitong Finance APP, with the wave of artificial intelligence (AI) infrastructure investment driving a surge in demand for data center networking equipment, Nokia (NOK.US) surpassed expectations with its third-quarter earnings. The financial report showed that Nokia’s Q3 revenue grew by 10% year-on-year to €5.154 billion; adjusted operating profit increased by 35% year-on-year to €605 million, far exceeding the consensus analyst estimate of €454 million.

This growth was driven by the fulfillment of some backlogged data center equipment orders. As 5G network construction slows, demand from traditional telecom customers is expected to remain sluggish. CEO Justin Hotard is focusing on building data centers into Nokia's new growth pillar. Last year, he introduced a developing strategy centered on the AI infrastructure boom and initiated a restructuring. Since then, Nokia has divested various business units. Nokia stated that these adjustments are expected to boost operating profit to double-digit growth over the next few years.

Data show that the network infrastructure department—which includes AI data center connectivity—saw Q3 sales rise 15% year-on-year to €1.829 billion. Within this, optical networking sales rose 18% year-on-year to €933 million; IP networking sales surged 43% year-on-year to €3.839 billion. The mobile infrastructure department, which covers traditional mobile device business, reported a 5% year-on-year rise in sales to €2.902 billion.

However, the rapid expansion of AI infrastructure has also brought challenges to device manufacturers. Supplies of components such as memory chips are constrained and prices have risen accordingly. Competitor Ericsson (ERIC.US) stated that it has alleviated these issues, partly due to customers making advance purchases during contract negotiations to hedge against anticipated price hikes.

Nokia’s comeback centers on capitalizing on the boom in the optical communications industry. As humanity enters the AI era, AI large models, autonomous driving, and embodied intelligence require higher demands for speed, capacity, and stability in data transmission—traditional electronic signal transmission methods are reaching their physical limits. Optical communication transmits information through light signals, enabling high-bandwidth, low-latency connections, and can reduce energy consumption in long-distance, large-capacity transmission, making it the "highway" for delivering AI computing power.

Once a dominant force in mobile phones, this giant is now achieving a comeback, over a decade after leaving the phone business, as a leader in communications and AI infrastructure. Nokia has now transformed into the world’s second largest telecom equipment vendor, holding core positions in 5G patents, optical communications, and computing power networks. The company holds a vast portfolio of 5G core patents; its share of optical communication equipment ranks among the world’s top, providing network infrastructure to over 130 countries, with most major North American cloud service providers using its optical transmission solutions.

Nokia’s transition to AI and cloud infrastructure has been accomplished through a series of acquisitions. In 2016, Nokia acquired Alcatel-Lucent for €15.6 billion, gaining access to Bell Labs’ core patents and becoming the world’s second largest optical network equipment supplier. In 2024, it executed a $2.3 billion “whale” acquisition of optical network equipment maker Infinera, creating a comprehensive chain from DCN to DCI and optical transmission.

Additionally, in October of last year, Nokia received a $1 billion strategic investment from Nvidia (NVDA.US). The two parties are collaborating on AI-RAN intelligent base stations, upgrading communication networks into edge computing power scheduling nodes, which has opened new growth opportunities for Nokia in the AI era. Their jointly developed mobile network equipment uses advanced chips from this American chip maker, instead of relying solely on the dedicated chips long used by traditional telecom networks. This collaboration is part of Justin Hotard’s broader strategy to prepare Nokia for the future—where AI computing will no longer be confined to data centers but will extend further into communication networks. With its portfolio in optical modules, data center interconnection, and 5G-A/6G technologies, Nokia is becoming a key builder of the “highway” for computing power in the AI era.