Nokia receives a $1 billion investment from NVIDIA, strongly entering the core AI targets in Europe

According to Zhitong Finance APP, Nokia (NOK.US) has seen a strong rise this week, highlighting that this 5G equipment manufacturer and former mobile phone giant is becoming an important player in the European artificial intelligence sector. Following NVIDIA's (NVDA.US) agreement to invest $1 billion in the Finnish company, Nokia's stock price is expected to achieve its largest single-week gain since January 2024 and is on track for its best month since 2013. According to the cooperation details, NVIDIA's chips will be used to accelerate the software development of Nokia's existing 5G and next-generation 6G networks.

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For Nokia, which has been struggling for years, this move represents a turning point. Previously, due to the slow deployment of 5G networks and results falling short of expectations, coupled with losing key customers like AT&T (T.US) and Verizon (VZ.US) in the U.S., the company faced numerous challenges.

Although the current stock price is still below the levels of a decade ago, only equivalent to one-tenth of Nokia's peak when it dominated the global mobile phone market in 2000, analysts believe that the company's transition to the AI ecosystem is already showing results. A recent acquisition has helped expand its network products into the rapidly growing AI data center market.

While the $1 billion scale is far smaller than NVIDIA's investment of up to $100 billion in OpenAI, analysts still see multiple positives: this funding will not only bolster Nokia's cash reserves but is also expected to enhance its competitiveness in the mobile network sector through technological collaboration, thereby stimulating future investments from telecom operators.

Citigroup analyst Andrew Gardner wrote in a report this week: "This $1 billion investment is a positive signal for Nokia's balance sheet, and the collaboration with NVIDIA places Nokia in a more advantageous position in both the wireless access network and data center/AI markets." Closer cooperation with NVIDIA may also bring Nokia's optical network products closer to large-scale data center operators like Microsoft. Beyond data centers, AI-driven mobile network solutions may provide the company with a competitive advantage in the next round of equipment upgrade cycles.

However, there are also cautious voices in the market. Benchmark forecasts from consulting firm Dell’Oro Group indicate that the overall wireless access network market will remain roughly flat over the next decade; as operators cut capital expenditures to improve cash flow, the mobile network market overall still appears weak. Bloomberg Industry Research analyst Matthew Blocksom pointed out that the primary motivation for telecom operators to use AI in the short term remains focused on cost reduction.

Nevertheless, the rapid rise in valuation multiples reflects a recovery in investor confidence. Currently, Nokia's price-to-earnings ratio is about 19 times next year's expected earnings, at a near ten-year high, and double the low point of 2023

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Jefferies analyst Jonathan Menon upgraded Nokia's rating to "Buy" this week, stating that the company is transforming from a business that previously struggled to achieve sales growth into one that is expected to deliver robust growth. He pointed out that positioning AI data centers as a growth engine will drive continuous improvement in Nokia's gross margin