Nokia's AI Cloud and Military 5G Pivot Fuels €1 Billion Order Quarter, But Sky-High Valuation Tempers Euphoria

Nokia’s Q1 cloud orders hit €1B, but a P/E of 94 raises caution. Revenue up 4%, optical networks shine, and defence 5G deal opens new growth.

Nokia’s transformation from a traditional telecom equipment maker into a supplier for hyperscale data centres and NATO defence networks is paying off in hard numbers. The company booked new cloud infrastructure orders worth €1 billion during the first quarter alone. Yet investors who have ridden the stock up nearly 100% year-to-date are now wrestling with a price-to-earnings ratio of 93.75 — a level that leaves little room for error.

The rally has already shown signs of strain. Nokia shares closed on Friday at €10.87, a weekly decline of 2.73%, after peaking at €11.14 earlier in the period. The stock is still up around 95% since January and roughly 133% over twelve months, but profit-taking has accelerated as the valuation becomes harder to justify against conventional hardware company benchmarks. The relative strength index of 61 suggests the equity is no longer cheap, merely less overbought.

Fundamentally, Nokia delivered a solid first-quarter performance. Adjusted earnings per share doubled to €0.05 from €0.03 a year earlier, while revenue rose 4% to €4.5 billion. The optical networks division was the standout, with revenue jumping 20% and gross margin expanding 320 basis points to 45.5%. Management now expects a sequential revenue increase of 5-9% in the second quarter, and has guided for comparable operating profit of €2.0-2.5 billion in 2026, with a similar target of up to €2.5 billion for the current fiscal year.

That profitability outlook is built on a proprietary technology edge. Nokia’s integration of Infinera has given it control over the entire supply chain for optical chips. At a facility in San Jose, California, the company manufactures lasers and detectors on a single photonic chip, enabling transmission speeds of up to 2.4 terabits per second with substantial power savings — a critical selling point for operators of giant AI data centres. Nonetheless, competition remains fierce: Ciena competes with specialised signal processors, while Huawei dominates the global optical infrastructure market.

Alongside the AI cloud push, Nokia is opening a new revenue stream in defence. In early May, Nokia Federal Solutions and Lockheed Martin unveiled a mobile 5G system tailored for the US Department of Defense. The modular, open-architecture design allows military personnel to integrate commercial 5G technology directly into vehicles without altering existing platforms. While the financial impact is negligible for this year, the deal positions Nokia as a long-term supplier for NATO allies seeking to embed commercial radio technology into mission-critical systems.

The strongest endorsement of Nokia’s strategic pivot came from its own management, which dramatically raised the growth forecast for the network infrastructure segment. The board now expects revenues to expand by 12-14% in 2026 — nearly double the original plan. Over the longer term, the company anticipates compound annual growth of 27% in the AI and cloud markets through 2028. To support that expansion, Nokia is investing close to €1 billion in new production facilities.

However, the sceptical case is gaining attention. At 3.25 times sales and 3.08 times book value, Nokia’s valuation multiples are well above historical norms. The entire re-rating hinges on sustained capital expenditure from hyperscale cloud providers. Any softening in telecom investment or renewed margin pressure from mobile networks could quickly reverse the gains. The defence narrative adds strategic depth but will not replace the need for profitable large-scale orders in the near term.

All eyes now turn to two key dates. On 15 May, institutional position filings for the first quarter will reveal how fund managers are positioning themselves behind the rally. Then on 23 July, Nokia reports its second-quarter results. Analysts will be scrutinising the book-to-bill ratio — a reading above 1 would confirm that order intake continues to outpace revenue, securing factory utilisation for the second half. Until then, the tension between a transformed business and a stretched stock price will keep Nokia’s shares in a delicate balance.