Nokia: The Underappreciated AI Stock Backed by Nvidia

Nokia, the Finnish telecommunications company, reported third-quarter earnings that highlighted a significant shift in its business. While overall revenue grew 9% year over year to €5.2 billion, the standout was its AI & Cloud division, where revenue surged 123% to €631 million. Order intake in that segment jumped 118%, and the company secured approximately €1.5 billion in new orders during the quarter.

This growth is partly fueled by Nokia's strategic partnership with Nvidia, which invested $1 billion in the company last October for a 2.9% stake. The two are collaborating on AI radio access networks (AI-RAN), which combine traditional wireless equipment with accelerated computing to turn telecom networks into distributed AI platforms. This is crucial for edge AI applications like autonomous vehicles and industrial automation, which require processing closer to where data is generated.

Nokia's acquisition of Infinera has also expanded its optical networking capabilities, making it a key supplier of high-speed connectivity for AI infrastructure. The company is working with major players like Alphabet, which is investing €13 billion in Finland, as well as telecoms and neocloud providers.

Despite the strong AI growth, overall revenue growth was modest, and the stock trades at a price-to-sales ratio of 2.6, which some see as attractive for an AI infrastructure play. The company's transformation from a legacy phone maker to an AI networking supplier is gaining traction, and the market is starting to take notice.

The AI infrastructure boom has largely been about chips—GPUs and memory—but the build-out also requires massive networking and optical equipment to move data between servers. Nokia is positioning itself as a key supplier in this space, which could drive significant growth as hyperscalers like Amazon, Microsoft, Alphabet, and Meta continue to pour capital into data centers.

The AI-RAN market is projected to exceed $200 billion by 2030, according to Omdia, and Nokia's partnership with Nvidia gives it a strong foothold. Nvidia's investment is a vote of confidence in Nokia's technology and its ability to execute. Moreover, Nokia's AI & Cloud revenue growth of 123% shows that demand is real and accelerating.

At a P/S ratio of 2.6, Nokia trades at a discount to many AI infrastructure peers, which could appeal to value-oriented investors looking for exposure to the AI theme. If the company can sustain its AI growth trajectory, the stock could re-rate higher. However, investors should note that Nokia is still a large, diversified company, and the AI segment, while growing fast, is still a relatively small portion of overall revenue.

Additionally, the competitive landscape is intense, with players like Cisco, Juniper, and Ciena also vying for AI networking dollars. Execution risk remains, but the Nvidia partnership and early traction suggest Nokia is well-positioned.