US, Europe And China Tensions Will Compress Network Margins

Key Takeaways

• Persistent geopolitical and trade tensions, talent competition, and industry commoditization threaten Nokia's revenue growth, margin stability, and market access.
  
• Rapid tech disruption and uncertain demand for next-gen networks force costly reinvestment, risking underutilized capacity and weaker long-term profitability.
  
• Global 5G and fiber demand, hyperscaler investments, operational restructuring, and strong positioning in broadband solutions collectively underpin Nokia's long-term growth and margin improvement prospects.

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 tensions, shifting tariffs, and trade barriers-specifically between the US, Europe, and China-are expected to persist, raising supply chain costs and restricting international market access for Nokia, which will limit top-line revenue growth and increase operating expense over time.
  
• Accelerating global competition for skilled technical labor is likely to drive up labor and research and development expenses, making it increasingly difficult for Nokia to defend its leading position in mobile and optical network innovation, which will weigh on net margins and long-term profitability.
  
• The network infrastructure industry is experiencing ongoing commoditization, leading to intense price competition and margin compression; this environment could erode Nokia's pricing power and result in structurally lower gross margins and operating margins, especially as hyperscaler penetration remains limited and the company lags major rivals in key product categories.
  
• The accelerating pace of technology disruption, including advances in AI, edge computing, and quantum technologies, threatens Nokia's relevance if it cannot rapidly and repeatedly reinvent its solutions-requiring substantial, ongoing reinvestment that could outpace free cash flow generation and depress future earnings per share.
  
• Delays in the adoption of next-generation network technologies, such as Open RAN and 6G, combined with uncertainty around customer CAPEX cycles, risk leaving Nokia with underutilized capacities and less order visibility, further dampening revenue growth and exposing the company to operational deleverage in its core businesses.

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 2.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.7% today to 8.0% in 3 years time.
• The bearish analysts expect earnings to reach €1.6 billion (and earnings per share of €0.29) by about August 2028, up from €909.0 million 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 11.6x on those 2028 earnings, down from 21.0x today. This future PE is lower than the current PE for the US Communications industry at 21.0x.
• Analysts expect the number of shares outstanding to decline by 2.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.08%, as per the Simply Wall St company report.

Nokia Oyj Future Earnings Per Share Growth

Risks

• The accelerating global rollout of fiber and 5G infrastructure, supported by legislative actions such as the U.S. Big Beautiful Bill and tax incentives for carriers, is likely to drive robust demand for Nokia's core products, providing a tailwind for net sales and potential revenue growth in coming years.
  
• Strong momentum in Nokia's Network Infrastructure and Cloud and Network Services segments, which both grew during the quarter and are expected to sustain this strength due to increasing demand from hyperscalers and expanding digital transformation projects, could help lift overall gross margins and earnings stability.
  
• Nokia is benefiting from a surge in large-scale hyperscaler and AI data center investments, which remain a small but growing portion of sales today and offer a significant long-term growth opportunity that, if captured, could materially improve top-line growth and support higher operating profit.
  
• Ongoing restructuring and integration efforts, such as the Infinera acquisition and unified corporate functions, position Nokia to realize operating synergies, improve productivity, and unlock operating leverage, which may enhance net margins and free cash flow over the medium to long term.
  
• Rising investment in broadband and fixed wireless access for underserved markets worldwide, together with Nokia's leadership in operator premise equipment and positive customer reception for its new innovations, could sustain double-digit growth in segments like Fixed Networks and Optical, boosting recurring revenues and long-term financial performance.

Valuation

• The assumed bearish price target for Nokia Oyj is €3.03, which represents two standard deviations below the consensus price target of €4.43. 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 €5.75, and the most bearish reporting a price target of just €3.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €20.4 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of €3.53, the bearish analyst price target of €3.03 is 16.6% 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.