Nokia (NOK) Reset: Is the Infrastructure Giant Still Undervalued At $13?

For years, Nokia stock was dismissed as a legacy hardware player trapped in a low-margin 5G cycle. But in early 2026, the narrative has fundamentally shifted. While the market remained fixated on software giants, Nokia quietly engineered a structural breakout into the $11 to $13 range, fueled by an “AI super-cycle” that is rapidly transforming the telecommunications sector.

The central question for investors is no longer survival, but valuation: has the market fully priced in Nokia’s evolution into a high-margin AI infrastructure powerhouse, or is there significant room for multiple expansion?

Image by Hermann Traub from Pixabay

The P/E Multiple Angle: Bridging The Valuation Gap

Nokia’s 2026 narrative centers on a market re-rating from “telecom utility” to “AI growth play.” While its 78x trailing twelve-month (TTM) P/E appears inflated by legacy restructuring and Infinera integration costs, investors are prioritizing a 30x–37x Forward P/E. Compared to AI peers like Arista Networks (ANET) at over 45x, Nokia’s reset remains in its early stages.

Nokia’s profitability improved following the Infinera acquisition, with the company reporting a comparable gross margin of 45.5% in Q1 2026. Nokia also maintained a strong €3.8 billion net cash position while supporting a €0.14 annual dividend. Despite these gains, Nokia trades at a discount to Cisco (CSCO) and Dell Technologies (DELL), leaving room for further multiple expansion as profitability gaps close.

Future upside hinges on Nokia’s ability to hit its 2028 targets: a comparable operating profit between €2.7 billion and €3.2 billion. Achieving this requires Network Infrastructure margins to reach 13% to 17% alongside a aggressive reduction in group expenses to €150 million. Crucially, Nokia must convert 65% to 75% of that profit into free cash flow to maintain the capital returns and R&D pace necessary to close the valuation gap with high-multiple peers.

Strategic Simplification

Nokia completed its transition into two primary units: Network Infrastructure and Mobile Infrastructure. By divesting legacy portfolio businesses like Microwave and Enterprise Campus Edge, the company is prioritizing profitable growth over market share at any cost. This restructuring mirrors the path taken by Ericsson (ERIC), which has also focused on specialized 5G and enterprise segments to combat commoditization from low-cost providers like Samsung Electronics and Fujitsu.

AI-Driven Demand

Nokia’s Q1 2026 net sales reached €4.5 billion. While overall comparable net sales grew 4%, the AI and Cloud segment grew 49%, now accounting for 8% of group sales. Nokia booked over €1 billion in AI-related orders in a single quarter, leading management to expect Network Infrastructure to grow 12% to 14% through 2026. This surge in optical and IP network demand puts Nokia in direct competition with Ciena (CIEN) and ANET.

While Nokia is just beginning its ascent, some analysts are questioning if the broader sector’s high-flyers have peaked; for instance, debates continue on whether the Arista rally is over as investors weigh a path to $111 against current valuation extremes. Both companies, however, continue to benefit from the massive CapEx spend by hyperscalers like Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT).

Future Outlook

Nokia is positioning itself as the leader for AI native 6G networks. The network is no longer just a pipe; it is becoming an intelligent sensing layer for autonomous agents and decentralized AI data centers at the edge. As Nokia targets this 6G future, it competes for R&D dominance against global giants like Huawei, as well as specialized challengers in the OpenRAN and software-defined networking space like Mavenir, Rakuten Symphony, and VMware by Broadcom (AVGO).

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