Nokia's Optical Bet Outpaces IBM's Software Pivot in AI Era

Nokia's bet on optical networking infrastructure has outpaced IBM's pivot to software services in the AI era, according to recent financial reports. Nokia's stock surged 63% year-to-date as AI and cloud revenue doubled, while IBM dropped 20% after mainframe revenue collapsed 42%. The two companies operate at different layers of the AI infrastructure stack, with Nokia selling physical networking hardware powering AI data centers and IBM offering software solutions running on top.

Nokia's Q2 report showed AI and cloud customer revenue more than doubling, up 105% in constant currency. Optical Networks grew 20% and IP Networks 16%. CEO Justin Hotard attributed the strong demand to supply chain constraints. In contrast, IBM's Q2 revenue grew just 1.1%, with operating EPS of $2.93 missing the consensus forecast. Software rose 5.1%, but infrastructure fell 7.4% as mainframe revenue plummeted.

Nokia targets 18-20% IP and Optical growth backed by a new U.S. chip fab, while IBM cut full-year guidance to 4-5%. Nokia's strong performance has been fueled by its investments in indium phosphide production through the planned purchase of NXP's fab in Arizona. The company also runs a technology licensing business through Technology Standards, which grew 15% in the quarter.