S&P Global Lifts Nokia Outlook to Positive on AI and Cloud Demand

S&P Global Ratings has revised its outlook on Nokia Corp. (NYSE:NOK) to positive from stable, signaling a potential credit rating upgrade within the next two years. The ratings agency affirmed Nokia's 'BBB-' long-term and 'A-3' short-term issuer credit ratings, attributing the improved outlook to growing demand for network infrastructure from artificial intelligence and cloud clients.

Network Infrastructure Strength

The primary driver for the outlook change is the performance of Nokia's Network Infrastructure segment. S&P noted the division grew 12% year-over-year in the second quarter of 2026 on a constant currency basis, propelled by a 20% rise in Optical Network revenue and a 16% gain in IP Networks.

The ratings agency projects the segment will expand by approximately 10%-15% in 2026-2027. This growth is expected to be fueled by robust demand from hyperscalers for high-speed data transfer capabilities. S&P also highlighted Nokia's February 2025 acquisition of Infinera as a key move that enhanced its optical networking capabilities and increased its exposure to the North American hyperscaler market.

Financial Projections and Headwinds

While the growth outlook is strong, S&P forecasts a temporary dip in profitability due to investment costs. Nokia's adjusted EBITDA margin is expected to decline to about 11.0% in 2026 from 12.1% in 2025, reflecting higher restructuring costs and operating expenses to support growth.

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Similarly, reported free operating cash flow after leases is projected to decrease to approximately €1.1 billion in 2026 from €1.25 billion in 2025, as capital expenditures rise to roughly €900 million. However, S&P anticipates cash flow will recover, driven by revenue and EBITDA growth, reaching toward €1.3 billion in 2027 and €1.6 billion in 2028. The company's large Mobile Infrastructure segment, which comprised about 57% of 2025 revenue, is expected to remain broadly stable.

Path to an Upgrade

S&P stated that a one-notch upgrade could occur within 18 to 24 months if Nokia meets specific financial targets. The key conditions for an upgrade include:

• Sustainably improving free operating cash flow after lease payments to more than €1.3 billion.
• Maintaining adjusted debt to EBITDA at or below 1.5x.
• Keeping funds from operations (FFO) to debt above 60%.

Conversely, the outlook could be revised back to stable if demand from AI and cloud customers slows materially or if the adjusted EBITDA margin deteriorates to less than 10% on a sustained basis.