In AI Infrastructure Race, Nokia’s Optical Bet Outpaces IBM’s Software Pivot

Jason Sargent Friday, September 18, 2026

Trey ThoelckeFri, September 18, 2026 at 1:05 PM UTC

24/7 Wall St.Quick Read -

Nokia (NOK) surged 63% year-to-date as AI and cloud revenue doubled, while IBM (IBM) dropped 20% after mainframe revenue collapsed 42%.

Nokia sells optical and IP networking hardware powering AI data centers; IBM sells the software stack, including Red Hat and watsonx, running on top.

Nokia targets 18-20% IP and Optical growth backed by a new U.S. chip fab; IBM cut full-year guidance to 4-5%, banking on deferred Q2 deals closing.

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Nokia (NYSE:NOK) 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.

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IBM Earnings Explorer — 24/7 Wall St.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

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.