Nokia Oyj: In the AI sweet spot

Core Conclusion

Nokia is transitioning from an undervalued mobile technology company into a direct beneficiary of hyperscaler capital expenditure on data center optical networking. AI & Cloud revenues of just €1.1bn in 2025 provide a low base for exponential order growth. The share has more than doubled year-to-date, but forward multiples remain attractive at 16x 2028e EV/EBIT. We see upside to €14 per share, driven by accelerating revenue growth in optical/IP networks and operating leverage that consensus has not yet fully captured.

What the Market May Be Underpricing

The market is likely underestimating the pace at which Nokia’s optical and IP networks unit can inflect. Q1 2026 revenue growth of +11% is expected to accelerate to >20% in H2. Peer data points—Cisco’s networking revenue up 25% and its AI orders forecast raised from $5bn to $9bn—support this trajectory. Furthermore, Nokia’s 2028 EBIT guidance range of €3.0-3.2bn appears conservative relative to our estimate of €3.65bn, which is derived from top-end revenue guidance for optical/IP and expanding margins. The stock’s scarcity as one of the few European pure plays on AI connectivity (vs. compute, energy) amplifies re-rating potential.

Evidence Chain

1. Revenue acceleration is data-supported. Nokia raised its optical/IP networks growth guidance from 10-12% to 18-20% in April 2026. Q1 2026 revenue of €4.5bn (+3.6% YoY overall) masks a step-change in network infrastructure, where order intake in Q1 2026 (an estimated €1.1bn) nearly doubled the Q1 2025 run-rate. See Exhibit 1 in the report: AI & Cloud orders rose from ~€400mn in Q1 25 to over €1bn in Q1 26.

2. Operating leverage is becoming visible despite higher capex. Management refined 2026 EBIT guidance to “somewhat higher” than the mid-point of the initial range. With revenue growth >20% in H2, we estimate adjusted EBIT margins expand from 11.6% in 2026e to 15.3% by 2028e—200bps above consensus.

3. Catalyst pipeline remains dense. Ciena reports on June 4; past results have driven positive reactions in Nokia shares. Hyperscaler deal announcements (including the NVIDIA partnership) and potential inclusion in the Euro Stoxx 50 in September could further tighten the stock.

Key Risks

• Execution on capacity expansion. Nokia is scaling up a new fab in San Jose and must deliver four next-generation DSPs by 2027. Any delays could constrain revenue growth and allow competitors (Ciena, Cisco) to capture share.
• Continued erosion in Mobile Infrastructure. The mobile networks division has lost market share, especially in North America and Europe. While we see “less bad” trends and a win-back opportunity from Western supplier preference, a further deterioration would offset gains in network infrastructure.
• Tariff and FX exposure. 55% of sales and 50% of costs are in North America. A strengthening euro or adverse tariff changes could compress margins.

Valuation & Trade Implications

We derive a price target of €14 using a DCF model (WACC 9%, terminal growth 3%). This embeds 2028e EBIT of €3.65bn—10% above the top end of management guidance. At €11.74, the stock trades at 16x 2028e EV/EBIT and 23x P/E. Our target implies 20x and 27x respectively—justified by a 15.3% EBIT margin and net cash position growing to €7.8bn by 2028e. The bull case of €19 (37x P/E) assumes outsized share gains in North America and Europe. Maintain Overweight.