Nokia Oyj (NYSE:NOK) closed at $10.60 on October 2, having doubled over twelve months. For most of the past decade Nokia was a shrinking business in a brutal industry, selling network equipment to a handful of enormous carriers who squeezed every contract they signed. Then AI data centers started buying optical networking gear, and Nokia happened to make it.
So the share price has answered a question the income statement has not. Did the company change, or did the market simply decide to pay more for the same one?
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What Actually Improved at Nokia:
Something did change, and it is worth being precise about what. Revenue grew 8.40% in the most recent quarter. For a telecom equipment maker that spent years shrinking while carriers delayed spending, growth of any kind is new information.
The balance sheet is also unusually clean. Nokia holds $5.13 billion of cash against $3.36 billion of debt, which is the opposite of how most equipment suppliers are financed.
Free cash flow came to $1.18 billion over the past twelve months on revenue of $20.39 billion.
The demand story behind it is real too. AI data centers need optical networking equipment, and Nokia sells it. That is a genuinely different customer from the mobile carriers who drove the last two decades.
So the rerating is not baseless. Investors repriced a company that had stopped shrinking and found a new end market at the same time.
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The Profits Have Not Followed the Price:
Nokia converts 3.47% of revenue into net profit and 7.93% into operating profit. Return on equity is 3.45%. Those are not the numbers of a business that has fixed itself.
Earnings fell 97.80% in the most recent quarter. Whatever the cause, the share price doubled through a period when reported profit nearly disappeared.
That gap has to resolve somehow, and there are only two ways. Either earnings climb to meet the price, or the price comes back to meet the earnings.
Scale is the other problem. Nokia competes with Huawei on price and with Ericsson on the same contracts, in an industry where the buyers are a handful of enormous carriers who negotiate hard every cycle.
Winning more revenue in that market has rarely meant winning better margins.
There is a stock growing faster than Nokia with an operating margin several times higher, and it trades on a lower forward multiple. You can find it in our 10 Best Semiconductor Stocks to Buy According to Billionaires.
The Valuation Case:
Nokia closed at $10.60 on October 2, up 109.49% over twelve months. Revenue grew 8.40% last quarter while earnings fell 97.80%.
The growth is probably sustainable. Optical networking demand from data centers is a multi year build, and a single digit rate is modest enough to repeat.
The price is the problem. Nokia trades at 77.27 times trailing earnings and 24.45 times next year’s estimates, against roughly 19 times for the S&P 500. A buyer is paying a premium to the market for a business whose margins remain thin.
The direct comparison is unkind. Cisco grew revenue 17.60% last quarter on a 27.72% operating margin and trades at 19.80 times forward, growing faster, earning more on every dollar and costing less. Ericsson, the closest peer of all, trades at 18.02 times while shrinking 6.10%, and pays 3.44% against Nokia’s 1.58%.
The alternatives are the whole question. We ranked our highest conviction names in 10 Best Stocks to Buy for High Returns in 2026.
Conclusion:
The rerating was earned in part. Nokia stopped shrinking and found a new buyer in the AI data center build, and it did so with more cash than debt. However, the operating business has not caught up with the share price. A 3.45% return on equity and a 7.93% operating margin are not turnaround numbers, and earnings collapsed in the most recent quarter. At 24.45 times forward the stock already costs more than the market average.
Market Sentiment:
Nokia Oyj was held by 81 hedge funds with a combined stake value of about $3.08 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 66 hedge fund holders with a cumulative investment value of around $2.42 billion in the previous quarter.
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This article is originally published at Insider Monkey.
