Geopolitical Tensions And Tech Shifts Will Erode Earnings

Key Takeaways

• Rising geopolitical tensions and trade barriers threaten operational stability, inflate compliance costs, and pressure Nokia's cash generation and future profitability.
  
• Shifts to software-led platforms, market saturation, and intense competition challenge growth prospects, compress margins, and undermine Nokia's ability to regain market leadership.
  
• Strategic expansion into advanced wireless and cloud markets, innovative growth initiatives, and strong customer contracts position Nokia for recurring revenues and improved long-term profitability.

Catalysts

Provides mobile, fixed, and cloud network solutions in North and Latin America, Greater China, India, rest of the Asia Pacific, Europe, the Middle East, and Africa.

• Growing geopolitical fragmentation and evolving global trade barriers, especially between the US, China, and Europe, threaten to disrupt Nokia's global supply chains and increase compliance costs, with tariff impacts already expected to reduce operating profit by 20 to 30 million euros in Q2. This persistent risk could significantly erode future earnings and cash generation due to long-term structural cost pressures.
  
• The accelerating dominance of hyperscalers such as AWS, Azure, and Google Cloud in core networking and cloud infrastructure is likely to accelerate the shift of industry value from traditional telecom hardware to software-centric platforms, undermining Nokia's ability to capture high-margin growth and causing potential margin compression over the coming years.
  
• With telecom operators across key regions facing saturated end markets and lower incremental returns, long-term capital expenditures in core markets are expected to keep declining, thereby shrinking Nokia's total addressable market and limiting growth prospects for network equipment revenue.
  
• Nokia continues to face entrenched competitive barriers in its attempt to recapture market share from industry leaders like Ericsson and Huawei, especially in high-growth next-generation networking and RAN markets. This persistent disadvantage is likely to cap revenue growth and prevent Nokia from regaining the scale needed to enhance profitability or improve net margins consistently.
  
• Intensifying price competition and industry-wide adoption of open, virtualized network models risk disintermediating traditional vendors like Nokia by lowering equipment prices and diminishing customer reliance on single-vendor solutions. As a result, hardware revenues could remain under severe pressure and long-term earnings risk further stagnation or decline.

Nokia Oyj Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Nokia Oyj compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Nokia Oyj's revenue will grow by 2.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.3% today to 7.7% in 3 years time.
• The bearish analysts expect earnings to reach €1.6 billion (and earnings per share of €0.28) by about July 2028, up from €1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.3x on those 2028 earnings, down from 17.1x today. This future PE is lower than the current PE for the US Communications industry at 18.5x.
• Analysts expect the number of shares outstanding to decline by 2.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.19%, as per the Simply Wall St company report.

Nokia Oyj Future Earnings Per Share Growth

Risks

• Growing demand for advanced wireless infrastructure, smart city initiatives, and data center buildouts-driven by AI and IoT-are accelerating, positioning Nokia as a critical supplier to carriers, hyperscalers, and enterprises, which may support net sales growth and drive higher recurring revenues.
  
• Expansion into high-growth segments such as optical networking and sustained double-digit growth in Network Infrastructure and Cloud and Network Services suggest Nokia is capitalizing on secular tailwinds, potentially boosting operating margins and overall profitability over the long term.
  
• The acquisition of Infinera provides increased access to hyperscale customers and the rapidly growing AI and cloud data center markets, with strong order momentum (book-to-bill above 1) indicating enhanced pipeline visibility and supporting future revenue expansion.
  
• Securing significant, multi-year contract extensions with major players like T-Mobile US and new licensing agreements (e.g., Amazon) bolster Nokia's competitive positioning and may create stable, high-margin, and recurring revenue streams, positively impacting net earnings and cash flow.
  
• Solid free cash flow generation (over €700 million in Q1) and a robust net cash position of €3 billion give Nokia financial resilience and strategic flexibility to invest in innovation, pursue acquisitions, and navigate industry or macroeconomic volatility, which could protect or enhance earnings and margins in the medium to long term.

Valuation

• The assumed bearish price target for Nokia Oyj is €3.41, which represents two standard deviations below the consensus price target of €4.73. This valuation is based on what can be assumed as the expectations of Nokia Oyj's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €5.85, and the most bearish reporting a price target of just €3.4.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €20.7 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 7.2%.
• Given the current share price of €3.8, the bearish analyst price target of €3.41 is 11.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.