Overview#

Morgan Stanley has increased its price target for Nokia from €6.50 to €8.50, maintaining an Overweight rating. This adjustment is driven by the growing demand for artificial intelligence (AI) infrastructure, which is expected to enhance Nokia's growth prospects.

Demand for AI Infrastructure#

The brokerage noted that the new price target aligns with its previous optimistic scenario. As investments in cloud computing and AI data centers accelerate, Nokia stands to benefit significantly. Recent results from Ciena, a competitor in optical networking, have reinforced expectations that demand for data center connectivity is increasing sharply. Ciena's strong growth in cloud-related revenue supports the idea that Nokia's revenue forecasts for its Optical and IP division might be conservative.

Revenue Growth Expectations#

Nokia has projected a revenue growth of 10% to 12% in its Optical and IP segment. However, Morgan Stanley anticipates a growth rate of approximately 13% by 2026, with optical networking revenue expected to rise by more than 20%. This surge is largely attributed to demand from large-scale data center operators, known as hyperscalers.

Strategic Partnerships and Future Events#

Although AI and cloud-related services currently account for only about 6% of Nokia's total revenue, this segment is expanding quickly. This growth is helping Nokia transition away from slower spending trends seen in traditional telecommunications. Investors are encouraged to monitor upcoming events, such as the Optical Fiber Communication Conference from March 15 to 19, which may reveal updates on Nokia's optical networking strategy and potential collaborations with major cloud companies. Notably, Nokia already supplies networking equipment to Microsoft’s Azure data centers and partners with NVIDIA on AI networking technologies.

Valuation Adjustments#

In addition to raising the price target, Morgan Stanley has also revised its valuation assumptions. The firm now applies a target multiple of 14 times the expected operating profit, up from the previous multiple of 10 times. This increase reflects Nokia's growing involvement in the rapidly expanding data center connectivity market.