Every network boom starts with a new kind of user. First it was people making calls. Then it was phones streaming video, and most recently, it was data centers training artificial intelligence. For most of the past decade, Nokia rode those waves from the back of the room. The brand that once ruled the phone in your pocket became a quieter business selling the gear that carries your calls, streams, and data. AI has already handed Nokia a second act. Data centers need faster connections, and the company’s optical and internet networking units are growth businesses again. Nokia’s chief executive now says the next user won’t be a person at all. It will be machines: robots, vehicles, and equipment that act in the real world and need fast, reliable networks. If you own Nokia shares, or a fund that holds them, that pitch comes with a price tag worth understanding. It is the part of the Oct. 22 report I spent the most time on. Nokia (NOK) CEO Justin Hotard made his case for physical AI in an Oct. 22 interview with CNBC, the same day Nokia reported a 35% jump in comparable operating profit to €605 million. In the same interim report, it lowered its free cash flow outlook. Why robots need a new kind of network Physical AI means software that senses and acts in the real world, from warehouse robots to self-driving cars. Hotard’s written statement put it plainly: “AI-native networks are moving into the physical world.” The idea is that those machines will need fast, reliable wireless links, not just data center fiber. Nokia said in April that AI already accounts for about 20% of network traffic and that machine-to-machine traffic will eventually dominate, according to Fierce Network. Nokia is building toward that with what it calls AI-RAN, radio networks that run AI directly on cell sites. Together with T-Mobile and Nvidia (NVDA), Nokia completed what Hotard called “the world’s first AI-RAN call in a live operator network,” according to the report. Related: Nokia CEO’s ‘2x faster’ AI claim comes with a catch for investors Early results are encouraging. Deutsche Telekom’s lab tests showed typical uplink speed gains of 10% to 15% from AI-based channel estimation, with field tests next, Nokia said in an Oct. 21 announcement. The timeline is still long. Finnish carrier Elisa expects commercial services in 2027, and BT is preparing a live trial in Birmingham that same year, according to the announcement. Joe Madden, lead analyst at Mobile Experts, told SDxCentral that Nokia is “betting the farm” on physical AI. Nokia CEO Justin Hotard says physical AI, from robots to self-driving machines, will drive the next wave of connectivity. Andriy Onufriyenko / Getty Images AI sales doubled while the outlook tightened Today’s growth is still coming from data centers. Sales to AI and cloud customers rose 123% from a year earlier, and Nokia booked €1.5 billion in new orders from those buyers. “In AI & Cloud, net sales more than doubled year-over-year and we secured EUR 1.5 billion in new orders,” Hotard said in the report. More Artificial Intelligence: Anthropic announces big plan to help workers disrupted by AI Mark Zuckerberg just made his boldest AI move yet IBM, Amazon quantum pricing gets a challenger in Postquant Labs The cash side moved the other way. Nokia lowered its free cash flow conversion outlook to 35% to 55% of comparable operating profit, citing working capital investments “to secure supply and support the growth opportunity in 2027,” along with faster restructuring. It now plans to invest an additional €400 million in working capital this year. Restructuring charges are expected to reach €1.1 billion, up from a prior €800 million estimate, according to Benzinga. Reported operating profit, which includes those charges, fell 22% to €196 million. Wall Street sold the beat anyway The beat was clear. Comparable operating profit of €605 million topped the €453 million average in a company-compiled analyst poll, according to MoneyCheck. The stock still fell. Shares were down 5.7% at $8.72 in premarket trading, according to Benzinga, and about 2% later on Oct. 22, MoneyCheck reported. Here is what investors weighed against the beat, according to the company and coverage of the report: Nokia kept its 2026 comparable operating profit outlook at €2.1 billion to €2.6 billion instead of raising it, according to the interim report. Mobile Infrastructure sales grew 5%, partly because revenue was pulled forward from the fourth quarter, the company said. Nokia expects fourth-quarter sales to rise 20% to 24% from the third quarter, a steep climb, MoneyCheck noted. Hotard said on the earnings call that “we absolutely need the new fab to come online to support the demand that we’re seeing,” SDxCentral reported. Free cash flow math points to a wide range In my analysis, the cash guidance cut matters more than the headline beat. Apply the new 35% to 55% conversion range to the €2.1 billion to €2.6 billion profit outlook, and 2026 free cash flow lands somewhere between about €735 million and €1.43 billion. That is a wide range for a company asking investors to trust a big growth year. The order book does help. AI and cloud customers made up about 12.2% of sales, Benzinga reported, or roughly €629 million this quarter. The €1.5 billion in new orders is about 2.4 times that amount, which suggests the demand is still building. Nokia is also still digesting Infinera, the optical networking company it acquired. It expects to finish that integration by the end of 2026, a year ahead of plan, with €200 million in net synergies, according to the report. Two dates Nokia shareholders should watch Expectations were already high going in. The stock had climbed about 48% this year before the report, MoneyCheck noted, so a beat alone was never going to be enough. If you hold Nokia, the near-term payoff is modest. The board declared a €0.03-per-share dividend, with a record date of Oct. 27 and payment on Nov. 5, the company said. The bigger question is whether the growth Nokia is paying for shows up. The company expects its combined optical and IP networking units to grow 25% to 30% in 2027. I would watch two things on Jan. 28, when Nokia reports full-year results. First, whether fourth-quarter sales hit that 20% to 24% jump. Second, whether free cash flow lands near the top or bottom of the new range. Robots may well drive the next wave of connectivity. The cash Nokia spends getting there decides whether you get paid for waiting. Related: The $1 billion bet: how Nokia stake fits Nvidia’s AI roadmap
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