Nokia's AI-Fueled Rally Faces a July Reality Check as Old Telecom Business Lingers

Nokia stock triples on AI growth hopes, but analysts cautious as legacy business still dominates. Forward P/E balloons to 36x, cloud revenue only 8% of sales.

The stock has more than tripled since last summer, yet Nokia's transformation from legacy telecom supplier to AI-infrastructure contender remains a work in progress. With the shares changing hands at 13.03 euros on Friday — up 134% year-to-date and 176% over the past twelve months — the market is pricing in a future that has not fully arrived. The forward price-to-earnings multiple has ballooned to roughly 36 times, more than double the 17 times seen at the start of 2026, a valuation leap that would have been unthinkable when Nokia was still viewed as a staid telecom equipment maker.

The catalyst for this rerating is real enough. Nokia's first-quarter 2026 results showed net revenue from its cloud and AI-related business jumping 49% year-on-year, though that segment still accounts for only about 8% of group sales. The broader Network Infrastructure division delivered 1.83 billion euros in revenue, up from 1.64 billion a year earlier, while comparable operating profit surged 54% to 281 million euros. Management has lifted its full-year guidance, now expecting Network Infrastructure growth of 12% to 14% and a combined 18% to 20% expansion for its Optical and IP Networks segments.

But a gap has opened between the stock price and the analyst community's enthusiasm. Bloomberg data shows that fewer than half of the analysts covering Nokia recommend buying the shares, and the average price target of $12.90 sits below the current market level — a reflection of how quickly the rally has outpaced revised estimates. CFRA was an outlier, upgrading the stock to "Buy" with a $16 target, arguing that Nokia is increasingly being valued as an optical networking and AI-infrastructure play rather than a traditional telecom vendor. Morgan Stanley's Terence Tsui raised his target to 14 euros while maintaining an "Overweight" rating, highlighting the company's improved positioning in optical networks.

UBS has taken a sum-of-the-parts approach to bridge the valuation debate, arguing that investors should assign different multiples to Nokia's AI-adjacent businesses versus its slower-growing mobile networks division. That legacy unit still generates more than half of Nokia's revenue and carries thinner margins, a drag that BNP Paribas analyst Jakob Bluestone captured succinctly: Nokia's success with cloud providers has fired the imagination that the company contains a "mini-Arista" and a "mini-Ciena," he said, but "the old Nokia has not disappeared."

The company is betting heavily that the new businesses will eventually outweigh the old. Nokia has raised its capital expenditure forecast to as much as 1 billion euros to expand optical networking production capacity. In May, it opened an AI Networking Innovation Lab in Sunnyvale, California, with partners including AMD, Lenovo, Supermicro, and Keysight. The lab is designed to test network architectures for AI training and real-time inference — and it has already helped drive a wave of investor enthusiasm that pushed the stock to a 52-week high of 14.14 euros on May 26.

That euphoria has since cooled. The share price has retreated roughly 7.85% from its peak, and the relative strength index has dropped to 52 after flashing overbought signals in May. Over the past seven trading days, the stock has lost nearly 1.7%. The correction has been technical in part: at its recent highs, Nokia traded more than 35% above its 50-day moving average and roughly 100% above its 200-day average, levels that invited profit-taking.

An insider transaction on May 26 added a subplot to the narrative. Konstanty Owczarek, a senior manager, purchased 37,405 shares at a volume-weighted average price of $15.9878 on the New York Stock Exchange — a vote of confidence from within the company as the stock pulled back from its record.

Nokia says it now has roughly ten customers who have publicly committed to AI-RAN (Radio Access Network) work, with larger-scale tests scheduled for later in 2026. That makes the next earnings release a critical inflection point. The company is due to report second-quarter results on July 23, when investors will scrutinize whether the elevated growth targets for Network Infrastructure, Optical, and IP Networks are translating into tangible revenue acceleration — and whether the AI narrative can finally generate the predictable, recurring income that would justify the valuation. Until then, the rally rests on promise as much as proof.