Global Digitalization, IoT And 5G Will Redefine Network Infrastructure

Key Takeaways

• Expansion into AI-driven data centers and high-growth markets positions Nokia for accelerated revenue growth, margin expansion, and increased market share.
  
• Leadership in energy-efficient networks, 5G/6G innovation, and robust intellectual property underpins recurring growth, resilient earnings, and enhanced cash flow.
  
• Mounting competitive, structural, and market pressures threaten Nokia's margins and revenue growth, amid technological shifts, organizational complexity, and telecom industry commoditization.

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.

• Analysts broadly agree that the Infinera acquisition will yield synergies and expand access to hyperscale and AI data center investments, but this may grossly understate the impact-Nokia now has a direct path to significantly outsized growth as network connectivity spend for AI and cloud remains the second-largest technology investment after GPUs, positioning the company for accelerated revenue and margin expansion, especially as enterprise order momentum exceeds expectations.
  
• Analyst consensus sees hyperscale, enterprise, and defense as new revenue pools; however, the convergence of these verticals, combined with Nokia's trusted supplier status and expansion in high-growth U.S. markets, could lead to network effects and a transformative increase in market share, powering superior earnings growth versus expectations.
  
• The exponential growth in global digitalization and IoT, coupled with Nokia's leading energy-efficient network infrastructure solutions, will be a powerful driver of demand as operators rush to upgrade to greener networks and governments enact stricter sustainability mandates-a catalyst for structural recurring growth and margin expansion.
  
• With continued 5G rollout and the company's deep investment in software, cloud-native offerings, and advancement toward 6G, Nokia is set to capture a disproportionately large share of future network capex cycles, positioning gross and operating margins for long-term, compounding growth as higher-margin segments scale.
  
• Nokia's robust intellectual property portfolio, strengthened by recent high-profile licensing deals outside smartphones (such as with Amazon), is becoming a material earnings pillar and provides resilient, high-margin recurring revenue that increases free cash flow and enhances downside protection.

Nokia Oyj Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Nokia Oyj compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Nokia Oyj's revenue will grow by 6.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.3% today to 9.8% in 3 years time.
• The bullish analysts expect earnings to reach €2.2 billion (and earnings per share of €0.4) 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 bullish analyst cohort, the company would need to trade at a PE ratio of 16.3x 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

• Nokia's ability to achieve sustained revenue growth may be constrained by global economic slowdown and heightened geopolitical tensions, which could reduce telecom sector capital expenditures and limit the company's addressable market for both traditional and next-generation infrastructure.
  
• Long-standing execution challenges-such as the persistent struggle for technology leadership against major competitors like Ericsson, Huawei, and emerging Asian vendors-could lead to ongoing price pressure and gross margin erosion, ultimately hindering improvements in net margins and long-term earnings.
  
• The accelerating migration of enterprise spending to cloud-native infrastructure, together with growing influence from large U.S. hyperscalers like AWS, Azure, and Google, threatens to marginalize Nokia's traditional networking business and may diminish future top-line growth and revenue diversity.
  
• Continued organizational complexity and legacy integration issues from major acquisitions like Alcatel-Lucent and Infinera may result in chronically elevated operating expenses, impeding operating margin expansion and placing downward pressure on profitability.
  
• Increasing industry commoditization as 5G matures, paired with rising R&D investment required for 6G and ongoing telecom operator consolidation, could further compress vendor margins and weaken Nokia's pricing power, adversely impacting both revenues and net income.

Valuation

• The assumed bullish price target for Nokia Oyj is €5.85, which is the highest price target estimate amongst analysts. 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 bullish 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 bullish analysts, you'd need to believe that by 2028, revenues will be €22.9 billion, earnings will come to €2.2 billion, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 7.2%.
• Given the current share price of €3.8, the bullish analyst price target of €5.85 is 35.1% higher.
• 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.