Nokia's AI-Fueled Rally Hits a Valuation Wall as Legacy Drags on the Story

The 129 per cent surge in Nokia's stock since the start of the year tells only half the story. The other half has been playing out over the past week, as a correction from a fresh 52-week peak forces investors to decide how much of the company's AI-infrastructure promise is already priced in.

The Helsinki-listed shares hit a high of €14.14 on 26 May, only to slide 2.67 per cent on Friday to close at €12.76 — a weekly loss of roughly four per cent. In New York, Nokia's ADRs reached a record closing price of $16.46 on the same day before dropping back sharply. By the following session, the stock had lost 3.4 per cent, far outpacing a 0.48 per cent decline in the broader market.

Analysts Split on Whether the Rally Is Justified

The pullback has done little to quiet a growing valuation debate. SEB Equities upgraded Nokia from Hold to Buy on 27 May, setting a price target of €8.90. Morgan Stanley was already bullish, having raised its target on the US-listed ADRs to $16.50 and calling Nokia a top pick in the AI space. Yet these endorsements failed to stem the selling pressure.

The broader consensus remains cautious. The average 12-month price target across analysts covering the stock stands at €9.375 — well below even the corrected level. Only 11 analysts rate the shares a Buy, while six recommend a Sell, leaving the overall rating at Neutral. Morningstar pegs the fair value of the Helsinki listing at €9.10. With a price-to-earnings ratio exceeding 100, the market is clearly paying for future growth rather than current earnings.

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The Nvidia Partnership Gives Credibility to the AI Pivot

What is fuelling the bull case is Nokia's deepening relationship with Nvidia. Products based on Nvidia's chips are being integrated into the mobile network portfolio, and a new AI Networking Innovation Lab has opened in Sunnyvale, California, to test architectures for large-scale training and real-time inference.

In the first quarter, Nokia secured around €1 billion in orders from the AI space, and the optical networks segment — the primary beneficiary of AI-related demand — grew 20 per cent year-on-year. Gross margin in that division jumped 320 basis points to 45.5 per cent. The company now expects its addressable market for AI and cloud to expand at a compound annual rate of 27 per cent through 2028, up sharply from the 16 per cent estimate it gave last November.

Yet the segment still accounts for only eight per cent of total revenue. That mismatch lies at the heart of the valuation dispute. UBS recommends applying a sum-of-the-parts approach, arguing that the AI-exposed network assets deserve a different multiple than the sluggish mobile networks business.

The Legacy Business Weighs on the Whole

Mobile networks, which still contribute more than half of Nokia's sales, are barely growing. Telecom operators are tightening capital spending, and Nokia has lost important contracts in the United States. The revenue from radio access networks remains subdued, and a handful of powerful carriers are squeezing margins through tough negotiations.

Nokia's overall first-quarter AI and cloud sales rose 49 per cent, but the optics business — while growing fast — remains too small to offset the drag from the core operations. The company has raised its full-year guidance for network infrastructure growth to 12–14 per cent, but the broader market is waiting for evidence that the AI tailwind is strong enough to lift the entire ship.

Technical Levels Offer a Route Map

The correction has brought Nokia back toward key support zones. In New York, the $14.90 and $12.45 levels are watched closely; a break below either would trigger further technical sell signals. In Helsinki, the short-term moving average at roughly €13.08 now acts as resistance.

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The longer-term moving averages remain constructive — the 50-day line is still above the 200-day — but the short-term momentum has clearly faded. The 30-day annualised volatility of 74 per cent underscores how heated trading has become. Since the peak on 26 May, the stock has dropped 7.2 per cent, and a short-term sell signal was triggered on that day.

All Eyes on the July Report

The next catalyst arrives on 23 July, when Nokia reports second-quarter earnings. Management has guided for sequential revenue growth of five to nine per cent and maintains a full-year operating profit target of €2.0 billion to €2.5 billion.

The quarterly numbers will show whether the AI-related optical orders continue to accelerate or whether the first-quarter performance was an outlier. Until that data lands, the gap between Nokia's ambitious AI narrative and the eight per cent of sales that actually supports it will keep the stock volatile — and keep the analyst community deeply divided.

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