How Nokia Became a Two-Track Growth Story: AI and Defense Power a 115% Stock Surge

Nokia sheds telecom cyclical reputation, pivoting to AI infrastructure and military 5G. Stock up 115% YTD, AI cloud revenue surges 49%, and Lockheed Martin partnership expands defense connectivity.

The Finnish network equipment maker has undergone a remarkable transformation in recent months, shedding its reputation as a pure telecom cyclical and emerging as a dual play on artificial intelligence infrastructure and military communications. The result has been a dramatic rerating that has propelled the stock 114.80 percent higher since the start of the year.

At Friday's close, Nokia shares stood at €11.96, retreating 4.13 percent on profit-taking after touching a new 52-week high of €12.55 on May 13. The pullback barely dented a rally that has left the stock trading at a price-to-earnings multiple of over 90, embedding lofty expectations for future growth.

AI Cloud Growth Redefines the Narrative

The rally's primary engine is a surge in AI-related demand. In the first quarter, Nokia reported total revenue of €4.5 billion, with its AI and Cloud segment expanding 49 percent year-on-year. The company booked over €1 billion in AI-linked orders in just three months, prompting management to raise its medium-term growth outlook for the cloud business to an annual compound rate of 27 percent through 2028.

New product launches have reinforced the momentum. Last week, Nokia unveiled a suite of "Agentic AI" tools for network management, including systems that autonomously optimise performance, diagnose faults and resolve issues without human intervention. The announcement briefly sent the stock up 12 percent and fits into a broader industry trend: the company estimates telecom operators will invest $6.2 billion in agentic AI by 2030.

Divestiture Sharpens the Focus

To free up resources for higher-margin AI infrastructure, Nokia is exiting its fixed wireless access (FWA) business. The buyer is US-based Inseego, with Nokia receiving shares and warrants worth $20 million, equivalent to a 7 percent stake. An additional $10 million cash investment will lift its total holding to roughly 11 percent. The transaction is expected to close in the fourth quarter of 2026.

The divestiture follows a string of strategic moves, including the acquisition of US optical networking specialist Infinera and a deepening partnership with Nvidia to develop AI-powered radio access networks. Together, these actions signal a clear pivot from legacy telecom hardware toward the data-centre and cloud markets that are driving the current technology cycle.

Military 5G Opens a Second Front

Alongside the AI push, Nokia is building a presence in defence communications. Nokia Federal Solutions and Lockheed Martin have jointly introduced a modular 5G solution designed for US and allied armed forces. The system uses an open architecture to embed commercial 5G technology into military vehicles and mobile platforms, reducing integration costs and broadening interoperability.

For NATO allies, secure and standardised battlefield connectivity is a growing priority. Nokia's established reputation in network reliability could give it an edge as military programs adopt more commercial off-the-shelf technology, opening a new revenue stream that is largely independent of telecom operator capital expenditure cycles.

Valuation Challenges and Technical Signals

The speed of the rally has pushed the stock well above its moving averages. The 50-day average sits at €8.59 and the 200-day at €6.01, leaving the current price roughly 40 percent and 100 percent above those levels respectively. The relative strength index of 59.7 indicates the stock is not yet overbought, but the trajectory remains steep.

The earnings multiple, meanwhile, leaves little room for error. Nokia's board is targeting comparable operating profit of between €2.7 billion and €3.2 billion by 2028, a goal that now carries outsized weight in justifying the share price. With the next quarterly report due on July 21, 2026, the market will be watching closely for fresh AI contract wins, progress on the military 5G initiative and further signs that the transformation is bearing fruit at the bottom line.