Nokia: Is The AI Boom A Supercycle For Data Centres?

Amid a global debate on the sustainability of the current AI investment boom, Nokia CEO, Justin Hotrad suggests the technology is fuelling a long-term growth trend comparable to the internet boom of the 1990s.

As business leaders leverage AI to enhance their workforce, innovate products and optimise supply chains, its foundational infrastructure requirements are creating substantial opportunities.

Justin’s remarks position the current growth in AI development not as a fleeting bubble but as a foundational change.

In an interview with Reuters, he says: “I fundamentally think we’re at the front end of an AI supercycle, much like the 1990s with the internet.”

This sentiment is echoed by other industry leaders, including Sundar Pichai, CEO at Google.

At Salesforce’s Dreamforce event, he compares the current AI movement to the competitive spiral that follows the introduction of platforms like YouTube and Facebook in the early 2000s.

AI development fuelling data centre demand

A direct consequence of the race to build AI capabilities is the sharply rising demand for data centres. Companies require vast infrastructural support to power AI applications, leading to substantial investment in this area.

Justin, who was the Head of Intel’s data centres and AI group before joining Nokia, explains that Nokia is seeing “growth across the board” from large technology firms to smaller entities.

The primary reason for this expansion is clear. “Clearly, the incremental growth investment is caused by data centres. It’s a huge step up in volume,” Justin adds. This increase in demand is creating a substantial market for network infrastructure providers.

Nokia’s strategic change and financial performance

Nokia’s financial results appear to reflect this trend. On 23 October, Nokia reported quarterly earnings that surpass market expectations, bolstered by strong demand for optical and cloud technologies.

This performance follows its acquisition of the US optical networking firm Infinera, positioning Nokia to better serve AI-focused data centres.

In an interview with CNBC, Justin highlights the success of the network infrastructure business, the optical networks business and stable growth in its mobile networks portfolio.

The impact of AI and cloud customers on Nokia’s sales is becoming more pronounced, accounting for 6% of its latest quarterly revenue.

This change towards AI IS the most important strategic step for the Finnish telecoms group since the sale of its mobile phone business in 2013.

While mobile networks are still a core part of its operations, Nokia is increasingly embedding AI into its radio access and fibre network systems.

To support this transition, Nokia created a Technology and AI organisation in September. According to Reuters, the division is led by the newly appointed Chief Technology Officer (CTO) Pallavi Mahajan, a former Intel executive and is tasked with accelerating AI-driven innovation.

The AI investment bubble debate

Despite the optimism, some industry leaders raise concerns that the rapid influx of capital into AI could be creating an investment bubble, with firms overbuilding costly infrastructure for unproven opportunities.

A Bank of America survey indicates that more than half of fund managers believe AI stocks are in a bubble.

Sam Altman, CEO of OpenAI, tells Business Insider in September: “When bubbles happen, smart people get overexcited about a kernel of truth. Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes.”

This view is shared by Joe Tsai, Co-Founder of Alibaba, who cautions: “I start to see the beginning of some kind of bubble [...] I start to get worried when people are building data centres on spec.”

However, Nokia’s CEO denies these concerns. Justin tells Reuters: “Even if there’s a bubble, a trough, we’ll look to the longer-term trends. And right now, all those trends are very favourable.”

Speaking with CNBC, he says Nokia is focused on utilising the “AI supercycle” and is “continuing to innovate and continuing to build momentum”.