Nokia's 140% Surge: The Valuation Puzzle on Wall Street

This Finnish company, once known worldwide for its "brick phones" and the Snake game, is being re-priced by the market - no longer a declining telecommunication equipment stock, but a beneficiary of the AI infrastructure wave.

Nokia's share price has risen by more than 140% year-to-date, becoming the fourth strongest performing component in the European Stoxx 600 index, with its stock price climbing to the highest level since 2008. The driving force comes from the explosive demand for its optical network equipment - the demand for high-speed optical interconnection in data centers continues to expand with the surge in AI computing power investment.

Last year's strategic acquisition of Infinera is now paying off: sales related to AI business in the first quarter increased by 49% year-on-year, and business guidance for cloud customers was raised in April. NVIDIA's strategic investment of $1 billion has further strengthened the market's perception of Nokia's AI infrastructure attributes.

However, valuation disputes have arisen. Nokia's 12-month forward price-to-earnings ratio has doubled from around 17 times at the beginning of the year to around 36 times, but the proportion of AI and cloud business in first-quarter revenue is only 8%, and the core mobile network business still accounts for more than half of total sales, and has been constrained for years by the contraction of operators' capital expenditures and the loss of contracts in the US market, with weak growth.

There is no consensus on Wall Street regarding how to price Nokia. Morgan Stanley believes that focusing solely on next year's earnings to set a target price may underestimate the value of long-term AI demand, advocating for a higher weight on future cash flows; UBS suggests using a sum-of-the-parts valuation, applying different multiples to AI-related network assets and traditional businesses. The reality is that the average target price of analysts is still 25% lower than the current stock price, and the proportion of bullish ratings is less than half.

Bloomberg cited Amand Leon, head of research at Energy Group Capital, as saying: "The easy phase of valuation reshaping is over, and the next question is whether to move into the second wave." Skagen Vekst fund manager Sandre Beckton was more direct; he has significantly reduced his Nokia holdings on the grounds that the current pricing has fully reflected the strong growth expectations of AI business, and that every capital cycle in history has ended with supply glut.

BNP Paribas analyst Jacob Bruus summarized the market's dilemma in one sentence: "Nokia may have a 'mini Arista' and a 'mini Ciena' hidden inside, but the old Nokia has not disappeared either."