Ericsson Stock Falls After Morgan Stanley Downgrade Cites North America Weakness

Shares of LM Ericsson (ERICb) fell 3.7% in Stockholm trading to SEK 96.62 after Morgan Stanley downgraded the stock to Underweight from Equal-weight. The investment bank cited growing pressure on the company's mobile network equipment business from slowing North American sales and declining profitability.

Downgrade Cites Revenue and Margin Headwinds

Analysts at Morgan Stanley, led by Terence Tsui, warned of "accumulating headwinds in both revenues and costs" that could lead to negative earnings revisions. The bank lowered its price target for Ericsson's Stockholm-listed shares to SEK 90 from SEK 95 and its U.S.-listed ADR target to $9 from $11.

The downgrade is based on specific operational concerns. North American Network revenues, which account for approximately 35% of Ericsson's total sales, contracted by about 5% year-over-year in the second quarter of 2026. This marked a significant slowdown after a period of strong growth driven by market share gains.

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Profitability and Competitive Pressure

Adding to investor concerns, Ericsson's own guidance for the third quarter points to further margin compression. The company projects gross margins for its Networks division to be in the 48–50% range, a decline of roughly 100 basis points from the previous quarter, as it enters a new phase of project rollouts.

Morgan Stanley also highlighted a competitive disadvantage relative to rival Nokia. The bank's note indicated a preference for Nokia, arguing its direct exposure to AI infrastructure spending from large-scale data center operators, or "hyperscalers," gives it a structural growth advantage that Ericsson currently lacks. The stock's decline occurred on a day of flat trading for broader U.S. indices, indicating the sell-off was driven by company-specific factors.