In AI Infrastructure Race, Nokia’s Optical Bet Outpaces IBM’s Software Pivot
Nokia and IBM have spent five years chasing similar returns, but their bets on where AI infrastructure spending lands could not be more different, and 2026 is forcing a reckoning between the two approaches.
Nokia (NYSE:NOK | NOK Price Prediction) and IBM (NYSE:IBM) have delivered similar five-year returns of 92.7% and 83.9%, respectively. Year to date, the paths diverged sharply. Nokia is up 62.8% after a Q2 beat-and-raise. IBM is down 19.7% after a rare EPS miss.
AI Orders Lift Nokia. Mainframe Timing Sinks IBM.
Nokia’s July report showed AI and cloud customer revenue more than doubling, up 105% in constant currency, with Q2 order intake of €2.8 billion in that segment. Optical Networks grew 20% and IP Networks 16%. CEO Justin Hotard said, “Demand remains strong, while supply continues to be the main industry constraint.”
IBM went the other way. Q2 revenue grew just 1.1%, and operating EPS of $2.93 missed the $2.97 consensus. Software rose 5.1%, with Red Hat up 11%, but Infrastructure fell 7.4% as IBM Z mainframe revenue collapsed 42% in a late-cycle trough. CEO Arvind Krishna conceded the quarter “fell short of expectations,” blaming deferred capex deals rather than lost demand.
Plumbing Versus What Runs on It
The two reside in AI infrastructure at different layers. Nokia sells physical plumbing: optical transport (fiber gear moving data between and inside data centers) and IP routing (switches directing traffic). Its Infinera acquisition and planned purchase of NXP’s fab in Chandler, Arizona, for indium phosphide production are bets on owning that supply chain. IBM sells what runs on top: Red Hat OpenShift, watsonx orchestration, HashiCorp, Confluent, and mainframes that process over 70% of the world’s transaction value. (The suppliers benefiting from that buildout, from power to cooling to networking, are the subject of a free report we put together.)
| Lens | Nokia | IBM |
|---|---|---|
| Core Bet | Optical and IP for AI data centers | Hybrid cloud software and mainframe |
| Q2 Growth Engine | AI & Cloud sales +105% | Data software +18% |
| Weak Spot | Fixed Networks −3% | IBM Z −42% |
| Revenue Base | Carrier and hyperscaler capex cycles | ~80% recurring software |
A Patent Portfolio IBM Cannot Match
Nokia also runs a technology licensing business through Technology Standards, which grew 15% in the quarter. That royalty stream on cellular standards has no IBM analog in networking, and it cushions Nokia when carrier spending sags. A majority of Nokia’s sales are billed in dollars despite its Finnish base, so a stronger euro would compress reported profits for U.S. ADR holders.
Next Test: Deferred Deals and Supply Ramps
IBM claims delayed Q2 transactions were “deferral and not destruction” and lowered its full-year constant-currency revenue growth guidance to 4%–5%. Nokia expects combined IP and Optical revenue to grow 18%–20% and aims for indium phosphide fab volume production by Q4 2026.
What the Market Is Paying For
At $10.60 per share, Nokia trades at a forward P/E near 22, pricing in a durable AI infrastructure supercycle and successful U.S. manufacturing pivot. IBM, at $237.75, carries a forward P/E near 18, a 2.8% yield, and 31 consecutive years of dividend increases. One is priced as a cyclical growth story that is delivering. The other is priced as a compounder working through an execution stumble and an active securities fraud inquiry.
Contact [email protected] for any questions or corrections.
Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.
Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community.
Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.
Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, moderating workshop sessions at regional conventions.
