Nokia Corp. (NOK) reported stronger-than-expected third-quarter earnings Thursday as growing demand from artificial intelligence and cloud customers boosted data-center networking sales, offsetting sluggish spending by traditional telecom operators.

The Finnish telecommunications equipment maker also benefited from converting part of its data-center equipment backlog into revenue.

However, Nokia shares fell in premarket trading as investors weighed weaker reported operating profit, higher restructuring costs and a reduced free cash flow conversion outlook.

Nokia Earnings Beat Wall Street Estimates

Nokia reported third-quarter net sales of 5.15 billion euros ($5.93 billion), up 10% year over year and 9% on a constant-currency basis. Revenue exceeded analysts' estimate of $5.80 billion.

Adjusted earnings of 10 cents per share beat the consensus estimate of 8 cents.

Network Infrastructure revenue rose 15% year over year, driven by 43% growth in IP Networks and 18% growth in Optical Networks.

Mobile Infrastructure revenue increased 5%, supported by Radio Networks and Technology Standards.

AI Data Center Demand Fuels Growth

AI and Cloud revenue surged 126% year over year, accounting for 12.2% of total sales. Nokia also secured 1.5 billion euros in orders from AI and cloud customers during the quarter.

CEO Justin Hotard is expanding Nokia's presence in data-center networking as weak 5G investment weighs on traditional telecom spending.

The company's acquisition of Infinera supports that strategy. Nokia expects to complete the integration by the end of 2026 and generate about 200 million euros in cost savings.

Nokia also expects its broader Optical and IP Networks businesses to grow 25% to 30% in 2027.

Meanwhile, Nokia is working with NVIDIA Corp. (NVDA) to develop mobile-network equipment using advanced chips, extending its AI strategy into communications networks.

Supply Shortages Threaten Expansion

Rapid AI infrastructure investment has tightened supplies of memory chips and other components, increasing costs across the industry.

Hotard told Bloomberg Thursday that customers are increasingly aware of potential shortages and are adjusting their purchasing decisions.

Mobile Infrastructure sales rose 5% to 2.9 billion euros, exceeding analysts' estimate of 2.8 billion euros. The increase partly reflected revenue pulled forward from the fourth quarter.

Nokia is expanding optical-networking capacity, including a second facility in San Jose expected to become fully operational by the end of October. However, semiconductor supply constraints remain a challenge.

Restructuring Costs Weigh on Profit

Nokia raised its full-year restructuring cost forecast to as much as 1.1 billion euros from 800 million euros.

Reported operating profit fell 22% to 196 million euros, while the operating margin narrowed to 3.8% from 5.4%.

However, comparable operating profit rose 35% to 605 million euros. The comparable operating margin improved 220 basis points to 11.7%.

The contrasting results highlight Nokia's challenge of balancing stronger AI-related demand with restructuring expenses, supply constraints and subdued telecom investment.

Nokia Maintains Full-Year Profit Outlook

Nokia reaffirmed its 2026 comparable operating profit forecast of 2.1 billion euros to 2.6 billion euros.

The company expects Network Infrastructure sales to grow 12% to 14% on a constant-currency and portfolio basis. It also raised its growth assumption for Optical and IP Networks to slightly above its previous 18% to 20% forecast.

For the fourth quarter, Nokia expects revenue to increase 20% to 24% sequentially, implying sales of approximately $7.12 billion to $7.36 billion. Analysts expect revenue of $7.30 billion.

Nokia expects a strong sequential increase in fourth-quarter comparable operating profit, lifting its full-year result above the midpoint of its guidance range.

However, the company lowered its full-year free cash flow conversion forecast to 35% to 55%, citing higher working capital investment and accelerated restructuring costs.

Nokia Price Action

NOK Price Action: Nokia shares were down 5.73% at $8.72 during premarket trading on Thursday, according to market data.