Nokia has its best month since 2013. Nvidia's investment could be a chance for revival

Nokia shares are on their way to their best month in twelve years, and may also show the maximum weekly growth since January 2024. The reason for the rally of the company's securities was the announcement of Nvidia's investment of $1 billion. Analysts note that this will help Nokia to strengthen its financial position and technological capabilities, bringing the company back to relevance in the market of networking equipment. At the same time, skeptics warn of weak growth in the mobile network market and limited short-term use of artificial intelligence by operators.

Shares of Finnish technology company Nokia could post their strongest weekly gain since January 2024 and their best monthly performance since 2013, Bloomberg reports. This became possible after the U.S. chip maker Nvidia announced that it will invest in the capital of Nokia $1 billion. The announcement of the investment on Tuesday, October 28, boosted Nokia shares by 28%. However, in trading on October 31, the quotes corrected down - by 3.6%. At the time of publication of this text, the weekly gain was about 12%. The company's depositary receipts in New York added 10% over five trading sessions.

Nokia is known primarily as a manufacturer of cell phones, but in recent years it has focused on supplying network equipment for telecom operators and developing 5G technologies, CNBC notes . The agreement with Nvidia marks a turning point for the company after years of difficulties, Bloomberg points out . The rollout of 5G networks has been slow and frustrating, and the departure of key customers in the U.S. - including AT&T and Verizon Communications, which have switched to competitors' equipment - has only exacerbated the problems.

As part of the deal, the two companies also agreed on a strategic partnership to jointly develop next-generation 6G communication technologies. Nokia plans to customize 5G and 6G software for Nvidia chips, as well as collaborate on AI networking solutions.

While Nokia's stock is still only worth about 10% of its 2000 peak - when the Finnish company dominated the cell phone market - analysts say its bet on integrating into the AI ecosystem is starting to pay off, Bloomberg writes. In February, Nokia acquired optical networking equipment maker Infinera for $2.3 billion, strengthening the company's presence in the AI data center market and making it the second-largest vendor in the optical networking market with a 20% share, behind only Huawei, Reuters wrote .

The deal with Nvidia will not only strengthen Nokia's financial position, but also expand its technological capabilities in the field of mobile networks, which in the future may attract new investors and telecom operators, the agency said. "The $1 billion investment will have a positive impact on Nokia's balance sheet, and cooperation with Nvidia will strengthen the company's position both in the radio segment and in the data center and AI market," Citigroup analyst Andrew Gardner said .

Tight integration with Nvidia could also bring Nokia's optical solutions closer to large cloud providers like Microsoft. And AI solutions for mobile networks could give the company an edge over competitors when the new telecom equipment refresh cycle begins.

Skeptics, however, point to the weak mobile network market, where operators are cutting capital expenditures to preserve cash flow. Consulting firm Dell'Oro Group predicts that the overall market for radio-accessible networks will remain essentially flat over the next decade. For most operators, the application of artificial intelligence in the near term will be limited mainly to cost optimization tasks, Bloomberg Intelligence analyst Matthew Blockham predicts.

Nevertheless, the sharp rise in multiples points to a rebound in investor confidence. Nokia shares are now trading at about 19 times projected earnings for the next 12 months, one of the highest multiples in a decade and double the 2023 low, the agency calculated.

"Nokia is transforming from a company that has long struggled to grow sales to a business with stable growth," said Jefferies analyst Janardan Menon, who raised his recommendation on its securities to "buy. Data center growth will be a driver for the company and will have a positive impact on its gross margin structure, he said.

This article was AI-translated and verified by a human editor