Nokia's Optical Business Lifts Hopes, But Core Thesis Hinges on Orders

What happened

Nokia's optical networking business is experiencing explosive growth from AI data center buildouts, with NVIDIA's $1bn investment for a 3% stake validating its competitive position. The company expects data center networks to account for 40% of revenue by 2028, which could support a higher valuation multiple. However, the DeepValue report maintains a WAIT rating, noting that AI-RAN monetization remains back-end loaded with field trials not until Q4 2026 and commercial systems by end-2027. At a P/E of 53.7x and EV/EBITDA of 21.3x, the stock already prices in significant AI-driven upside, leaving little room for error. The next 6–12 months hinge on sustained optical/IP order intake and multi-year RAN extensions to confirm the growth narrative.

Implication

Near-term, the optical networking tailwind is real but already reflected in the elevated multiple, limiting upside without further tangible order disclosures. The AI-RAN opportunity is promising but remains pre-revenue until at least late 2026, introducing execution risk. Investors should monitor Q1 2026 segment results under the new reporting structure for evidence of continued AI & Cloud order momentum. The attractive entry point remains around $8.50 per the DeepValue report, offering a margin of safety absent today. Until AI-RAN transitions from pilots to contracted deployments, the risk/reward favors waiting for a better entry or clearer commercial traction.

Thesis delta

The new article reinforces the optical/IP catalyst but does not alter the fundamental WAIT call. The key shift is that the optical business provides a stronger near-term earnings floor than previously assumed, potentially lifting the base case towards $11 if order intake remains robust. However, the core thesis still requires AI-RAN commercialization proof, and the elevated valuation offers no cushion for disappointment.