Network Infrastructure Outlook Raised as AI and Cloud Orders Surge Past EUR 1 Billion (NOK Q1 2026 Earnings Call)
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Nokia's first-quarter results provide a powerful confirmation of the accelerating AI super cycle, driven by an extraordinary surge in demand for optical and routing infrastructure from hyperscale data centers. Propelled by EUR 1 billion in new AI and cloud orders and a 20% sales spike in its Optical Networks division, the company executed a substantial upward revision to its full-year growth assumptions for its Network Infrastructure segment. Supported by early synergy gains from the Infinera acquisition and expanding gross margins, Nokia is aggressively positioning itself to capture an addressable AI infrastructure market that management now expects to grow at a blistering 27% CAGR over the next three years.
Accelerating AI Demand Drives Massive Order Inflow
Nokia delivered a solid 4% increase in net sales to EUR 4.5 billion during the first quarter, headlined by staggering 49% growth from its AI and cloud customer segment. CEO Justin Hotard emphasized that hyperscaler capital expenditure expectations for 2026 have soared to over $700 billion, directly translating to EUR 1 billion in new orders for Nokia in Q1 alone. This explosive demand is structurally shifting the market, leading management to sharply increase its forecast for the AI and cloud addressable market from a 16% to a 27% compound annual growth rate between 2025 and 2028.
Sweeping Upgrades to Network Infrastructure Guidance
Capitalizing on this momentum, Nokia substantially raised its 2026 growth outlook for its Network Infrastructure division. The company now expects the segment to grow between 12% and 14%, a massive leap from the 6% to 8% range established just three months prior. Even more striking is the targeted 18% to 20% growth for the combined Optical and IP Networks portfolios. CFO Marco Wiren noted that the 20% sales expansion in Optical Networks was a key driver, which notably benefited from both the scale and the rapid integration synergies of the recent Infinera acquisition.
Margin Expansion Across Dual Growth Engines
Profitability metrics matched the top-line strength, with Nokia's gross margin expanding 320 basis points to 45.5% and operating margin climbing 200 basis points to 6.2%. The Mobile Infrastructure segment delivered a 430 basis point gross margin improvement—aided by the absence of a EUR 120 million contract settlement charge from the prior year—while Core Software saw solid 5% growth. Despite the robust EUR 629 million in free cash flow, Wiren cautioned that operating profit weighting will remain heavy in the second half of the year as Nokia front-loads strategic investments to secure critical supply chain capacity for indium phosphide components.
Data Center Densification Demands New Architectures
During the Q&A, analysts focused intently on the longevity and capacity of this optical demand wave. Hotard highlighted that Nokia's new hyperscale multi-rail solution, slated to ship later this year, delivers an 8x increase in density without expanding physical infrastructure, addressing a critical bottleneck for data centers. Management also confirmed that their new San Jose indium phosphide manufacturing facility remains on track to ramp production later this year, a critical supply chain move that mitigates industry-wide optical component shortages and secures Nokia's aggressive 18% to 20% growth trajectory for the segment.