Goldman Sachs Raises Nokia Price Target, Bullish on AI-Driven Optical Network Growth

Overview

This research report, issued by Goldman Sachs, primarily updates earnings forecasts and the price target for Nokia. The core logic is that the acceleration of AI infrastructure construction has significantly improved demand visibility for Optical and IP Network businesses. While maintaining a 'Neutral' rating, the firm raised its 12-month price target from €8.0 to €8.9 (ADR from $9.2 to $10.4) and increased valuation multiples to reflect stronger growth potential in AI-related segments.

Core views

Demand Side: AI-driven capex exceeds expectations. Nokia management noted that the 2026 capex forecast for hyperscale data centers has been significantly raised from approximately $540 billion to over $700 billion. This change reflects an acceleration in AI infrastructure build-out, particularly as machine-to-machine communication becomes the primary driver of network demand during the evolution from early training workloads to agentic AI and physical AI. In this context, Nokia raised its 2025-2028 CAGR forecast for its AI and Cloud addressable market from 16% to 27%, subsequently driving the overall network infrastructure growth forecast up from 9% to 14%. Based on this, Goldman Sachs raised its 2026 growth forecast for Nokia's Optical and IP Network businesses to 18-20%. Supply and Integration: Increased operating expenses to alleviate supply bottlenecks; smooth Infinera integration. As the optical network supply chain remains a key constraint, Nokia is increasing operating expenses (Opex) for R&D, sales and marketing, and manufacturing scale, alongside targeted capex for manufacturing capabilities. Meanwhile, the integration of Infinera is proceeding smoothly, with synergy capture meeting or slightly exceeding initial expectations. Management aims to lift the operating margin of the combined optical business to double digits and hinted at potentially surpassing the initially set €200 million synergy target within three years. Early commercial traction and design wins have shown positive signs. Other Businesses: RAN market flat, focusing on software value. Compared to the high prosperity of optical networks, the telecom Radio Access Network (RAN) market is described as structurally flat. Therefore, Nokia's strategic focus is shifting towards enhancing profitability and capital efficiency through software-driven RAN innovation, new feature sets, and operational discipline, rather than relying on growth from traditional hardware capex cycles.

Analysis framework

Goldman Sachs' analytical approach follows the logical chain of 'Macro Trends → Industry Supply/Demand → Company Fundamentals → Valuation Adjustment'. First, it starts with capex guidance from downstream hyperscale data centers to capture macro signals of accelerating AI infrastructure construction. Second, combining Nokia management's guidance, it quantifies the pull effect of AI on specific sub-segments of optical communications and IP networks (such as raising CAGR and short-term growth forecasts). Third, it assesses the improvement in supply capacity and margins from internal operational adjustments (such as Opex investment) and M&A integration (Infinera). Finally, based on raised EBITDA forecasts and higher valuation multiples (reflecting a growth premium), it recalculates the price target.

Methodology notes

• Industry/Sector Analysis FrameworkVolume-Price Split

  More accurately forecasting changes in revenue structure by breaking down overall network infrastructure growth into high-growth AI/Cloud-related portions and other traditional portions.

  The report does not view Nokia's overall growth broadly but splits it into AI-driven Optical/IP Networks (high growth) and traditional RAN networks (flat), thereby explaining why specific segments are favored despite a flat overall market.

• Valuation MethodEV/EBITDA valuation

  Using Enterprise Value to EBITDA multiple (EV/EBITDA) as the core valuation anchor and adjusting the multiple based on growth prospects.

  Goldman Sachs uses the 2027 expected EV/EBITDA multiple for valuation. Due to better growth prospects for AI-related businesses, the firm raised the multiple from 12x to 13x, reflecting the logic that high-growth businesses should command a higher valuation premium.

• Competition and Strategy FrameworkEconomies of scale / learning curve

  Achieving synergies through M&A integration (Infinera) to increase market share and operational efficiency.

  The report focuses on cost savings and revenue synergies brought by the Infinera integration, viewing them as key drivers for improving margins in the optical network business, consistent with an analytical framework that enhances competitiveness through scale effects.

Asset mapping & comparison

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

• Nokia (NOKIA.HE/NOK.US)

  Direct beneficiary; its leading position in optical communications and IP routing makes it a primary beneficiary of AI data center construction.

  Strengths

  Strong optical network product portfolio, synergies from Infinera integration, high visibility of AI-related orders (€1 billion in new orders added quarterly).

  Weaknesses

  Stagnant growth in traditional RAN business, overall growth dragged down by non-AI segments.

  Comparison

  Compared to pure-play telecom equipment vendors, Nokia has greater exposure to the AI infrastructure side and higher potential for valuation re-rating.

  Risks

  Optical network growth falling short of expectations, margin pressure in RAN business, integration execution risks.

Key data

• 2026 Hyperscale Data Center Capex Forecast>$700BSignificantly raised from previous forecast of ~$540B
• AI and Cloud TAM CAGR (2025-28)27%Significantly raised from previous forecast of 16%
• 2026 Optical and IP Network Growth Forecast18-20%Raised based on strong demand and improved supply visibility
• 12-Month Price Target€8.9 / ADR $10.4Raised from previous €8.0 / ADR $9.2
• Valuation Multiple (CY27E EV/EBITDA)13xRaised from previous 12x, reflecting better growth opportunities
• FY26-30 Revenue Forecast Adjustment+2% to 3%Reflecting stronger growth in Optical Networks and IP Networks

Impact & implications

For Nokia, this means its growth engine is shifting from traditional telecom equipment to AI data center interconnect facilities. Strong performance in the optical communications business will offset weakness in the radio access network market and drive an overall improvement in earnings quality. For the industry, this indicates that AI infrastructure construction has entered a phase of substantial large-scale capital investment; upstream optical module, DSP chip, and network equipment suppliers will continue to benefit, but will also face pressure from supply chain capacity expansion.

Risks

• Optical communications and IP network growth rates higher or lower than expected
• Tailwinds or headwinds in incremental profitability of the Radio Networks segment
• Cost control and planned investments related to capacity expansion better or worse than expected, which could create tailwinds/headwinds for absolute EBIT under strong/weak revenue scenarios

What to watch

• Actual realization of hyperscale data center capital expenditure
• Progress in realizing synergies and margin improvements following Infinera integration
• Commercialization progress and standardization of AI-RAN pilots