Nokia Stock Increases 135.8% in a Year: Should You Invest?

Nokia Corporation NOK shares have surged 135.8% in the past year compared with the industry’s growth of 26.4%. The stock has outperformed the Zacks Computer & Technology sector and the S&P 500 during the same time frame.

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The company has outperformed its peers like Arista Networks, Inc. ANET and Ericsson ERIC. Shares of Ericsson have gained 27.9%, and shares of Arista have risen 40.4%.

Major Growth Drivers

In the near term, one of the key growth drivers for Nokia is accelerating investment in AI and cloud infrastructure. Nokia’s AI & Cloud sales more than doubled year over year in the second quarter of 2026, representing 105% growth. AI & Cloud order intake reached €2.8 billion. It is to be noted that the demand was not confined to a particular product category. The company secured long-term orders across both Optical Networks and IP Networks.

Nokia’s optical portfolio supports applications spanning from metro and regional networks to long-haul connectivity and data-center interconnects. Rising bandwidth requirements of AI workloads, cloud computing and data-center interconnectivity is propelling sales in the Optical Networks business. Nokia is also expanding optical manufacturing capacity in the United States. Its San Jose facility is expected to begin ramping production toward the end of 2026. Such initiatives to support increasing demand are positive.

IP Networks is another important growth contributor. Stronger demand for IP routing and data-center switching is driving net sales in this vertical.

Nokia’s development of AI-RAN provides a longer-term growth opportunity. The company has already launched the industry’s first commercial AI-RAN platform during the quarter. The leading-edge tech is designed to increase network capacity using existing spectrum. It also allows radio networks to evolve through software rather than requiring frequent hardware replacements.

It is evident from its recent strategy that Nokia is expanding beyond traditional connectivity hardware by incorporating AI into network operations. The company is collaborating with Google Cloud to introduce AI agents for autonomous networks. Nokia is partnering with Vodafone to develop AI-powered network slicing that can dynamically allocate network resources. Such strategic collaboration with industry leaders bodes well for sustainable growth.

Key Challenges

Nokia’s strategy of pivoting toward higher-growth businesses is creating significant near-term financial pressure. The company recorded €390 million of restructuring and associated charges in the second quarter of 2026. This is weighing on operating profit. Nokia’s AI and optical infrastructure expansion requires substantial capital investment. 

Free cash flow was negative €732 million in the second quarter, while net working-capital outflows were approximately €1.15 billion. Continued investment in optical manufacturing capacity may bring long-term benefits but will likely impact free cash flow in the near term.
Nokia continues to compete in highly competitive telecommunications equipment markets where pricing, technology differentiation and customer procurement decisions influence contract awards and long-term profitability. In data-center and IP networking, Arista Networks brings strong competition, while Ericsson remains a major rival in mobile infrastructure.

The company remains exposed to the cyclical nature of telecommunications infrastructure spending, which can create uneven revenue and profitability across investment cycles. While AI and cloud demand is supporting Optical Networks and IP Networks, carrier spending remains mixed across regions and business lines.

Estimate Revision Trend

The company’s earnings estimates for 2026 have declined, and 2027 have improved over the past 60 days.

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Key Valuation Metric of NOK

From a valuation standpoint, NOK is currently trading at a discount compared to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 21.96 forward earnings, lower than 30.71 for the industry and above its mean of 20.02.

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End Note

Nokia's growth strategy is increasingly shifting from traditional telecom infrastructure toward AI-driven connectivity infrastructure. Strong momentum in the Optical Networks and IP Networks business is positive. Partnership with leading tech companies is boosting commercial opportunities. However, competitive market dynamics and cyclical end markets remain major concerns. Macroeconomic uncertainty remains a headwind. With a Zacks Rank #3 (Hold), Nokia appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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