Goldman Sachs: AI Infrastructure Boosts Nokia’s Optical & IP Outlook; Neutral Rating Maintained

Overview

Goldman Sachs has published an updated report on Nokia, raising its growth outlook for the company’s optical and IP network segments and revising upward financial forecasts for the coming years, driven by strong demand from accelerating AI infrastructure buildouts and improved supply chain visibility. Despite positive fundamental revisions and an increased target price of €8.9 (ADR $10.4), the report maintains a 'Neutral' rating given that the current share price is already near the new target. The core thesis is that AI-driven capital expenditure expansion is translating into tangible orders, and the Infinera acquisition integration is progressing smoothly, supporting medium-term growth.

Core views

Demand-side and addressable market reassessment: Due to significantly higher AI capex guidance from hyperscale cloud providers (projected to exceed $700 billion in 2026), Nokia has revised its compound annual growth rate (CAGR) expectation for its AI- and cloud-related addressable markets from 16% to 27% for 2025–2028. The overall network infrastructure growth forecast has also been raised from 9% to 14%. Management notes that as AI evolves from training models toward agent-based and physical AI applications, inter-machine communication is structurally reshaping traffic patterns, significantly increasing demand for data center interconnects and internal routing/switching. Accordingly, Goldman Sachs has raised its 2026 growth forecast for Nokia’s optical and IP network businesses to 18–20%. Order quality and supply chain validation: Nokia secured €1 billion in orders from AI and cloud customers in a single quarter, representing 8% of group sales. Visibility into optical component supply (including DSPs) has improved, and lead times have extended to 12–18 months—indicating firm purchase orders with clear delivery schedules rather than speculative demand, bolstering confidence in demand sustainability. To address supply bottlenecks and capture upside during this cycle, the company is simultaneously increasing operational spending in R&D, marketing, and manufacturing to secure critical components and expand capacity. M&A integration and synergies: Integration of Infinera is on track or slightly ahead of schedule. The two companies’ product portfolios are complementary, and early design wins have already been achieved commercially. Management reaffirms that the combined optical business will achieve double-digit operating margins, and current progress suggests the €200 million synergy target over three years may be exceeded. This integration not only enhances operational efficiency but also strengthens Nokia’s competitive position in optical networking. RAN business and earnings forecast adjustments: The Radio Access Network (RAN) segment remains stable, with strategic emphasis shifting toward software-driven value creation and returns. Based on strong optical/IP performance and operating leverage, Goldman Sachs has raised Nokia’s FY26–30 revenue forecasts by 2–3%, gross margin forecasts by 2–3%, and EBIT forecasts by approximately 3%. FY26 EPS is raised by 5% due to one-time financial income contributions, while FY27–30 EPS forecasts are only modestly adjusted by 0–1%, reflecting the net impact of EBIT growth and share count changes.

Analysis framework

The report employs a top-down analytical framework: 'Macro Capex → Segment Demand → Company Order Validation → Financial Model Revision → Valuation Repricing.' It begins by tracking changes in hyperscalers’ capital expenditures to assess the overall trend in AI infrastructure investment. Next, it validates demand authenticity and sustainability using industry-specific supply-demand indicators (e.g., lead times, component availability). Then, it evaluates supply-side capability improvements through M&A integration progress. Finally, these qualitative insights are quantified into adjustments to revenue, profit, and valuation multiples. This combined top-down and bottom-up approach ensures that earnings forecast revisions are supported by both macro trends and micro-level evidence.

Methodology notes

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Value Chain Transmission

  Transmission mechanism from cloud provider capex to equipment vendor demand

  The report analyzes how upstream hyperscale cloud providers’ capex increases (from $540B to $700B) translate into specific incremental opportunities for midstream network equipment vendors like Nokia in optical and IP segments, illustrating a classic value chain sentiment transmission logic.

• Valuation MethodologyEV/EBITDA valuation

  Forward EV/EBITDA-based target price setting

  The report uses CY27E EV/EBITDA as the valuation anchor, raising the multiple from 12x to 13x to reflect a premium for higher growth potential in AI-related businesses. The revised target price is derived by applying this adjusted multiple to updated EBITDA forecasts—a common relative valuation approach for hardware tech companies.

• Company Fundamentals & Financial FrameworkOperating/Financial Leverage Analysis

  Non-linear amplification of EBIT from revenue growth

  When revising earnings forecasts, the report accounts not only for higher revenue bases but also incorporates operating leverage effects, resulting in EBIT upgrades (+3%) slightly exceeding revenue upgrades (+2–3%), reflecting profit elasticity from fixed cost absorption.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Nokia (NOKIA.HE / NOK.US)

  Direct beneficiary of surging AI data center interconnect demand and Infinera merger synergies

  Strengths

  Accelerating optical/IP growth, high order visibility, smooth integration, potential for expanded AI cloud market share

  Weaknesses

  Stagnant RAN business growth, current valuation near fair value, limited short-term upside

  Comparison

  Compared to pure-play optical module vendors, Nokia offers end-to-end solutions; versus Ericsson, it has a more aggressive positioning in AI infrastructure

  Risks

  Optical/IP growth may under- or outperform expectations, RAN profitability volatility, cost overruns in capacity expansion

Key data

• 2026 Optical/IP Network Growth Expectation18–20%Significantly raised from prior outlook, reflecting AI-driven demand
• AI & Cloud Market CAGR (2025–28E)27%Previously 16%; upward revision of 11 percentage points
• Quarterly AI/Cloud Customer Orders€1 billionRepresents 8% of group sales, validating demand realization
• FY26–30 EBIT Forecast Adjustment+3%Driven by revenue upside and operating leverage
• Target Price Valuation Multiple (CY27E)13x EV/EBITDAIncreased from previous 12x
• Optical Business Lead Times12–18 monthsLong lead times indicate high order certainty

Impact & implications

For Nokia, AI infrastructure buildout has moved beyond conceptual validation into a phase of meaningful scale-up, with optical and IP networks emerging as new growth engines that help offset cyclical volatility in traditional telecom operator businesses. Successful Infinera integration further solidifies its competitiveness in high-speed optical transport. However, the current share price already largely reflects this positive outlook (implied upside near zero), limiting near-term excess return potential. Future stock performance will hinge heavily on the pace of earnings delivery and whether the RAN business can stabilize and recover.

Risks

• Growth in optical and IP network businesses may be faster or slower than expected
• The wireless (RAN) segment could experience additional earnings tailwinds or headwinds
• Uncertainty around cost control and execution of capacity expansion plans may affect absolute EBIT levels

What to watch

• Whether actual capex pacing by hyperscale cloud providers aligns with the $700 billion expectation
• Concrete realization of Infinera synergies in financial reports
• Resolution of optical component supply bottlenecks and changes in lead times
• Progress in RAN software transformation and margin trajectory