Nokia Shares Gain 20% in the Past 6 Months: Reason to Buy NOK Stock?

Buoyed by a holistic growth model, Nokia Corporation NOK is currently trading at $4.22, close to its 52-week high of $4.225. The stock has gained 19.6% over the past six months compared with the industry's growth of 19.1%, outperforming peers like Comtech Telecommunications Corp. CMTL but lagging Ericsson ERIC.

Nokia is well-positioned for the ongoing technology cycle, given the strength of its end-to-end portfolio. The company's deal win rate is encouraging with notable successes in the key 5G markets of the United States and China.

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NOK's Value Creation Journey, Strategic Focus

Nokia has made significant progress on its three-phased journey of value creation: Reset, Accelerate and Scale. Its focus on capital allocation and technology leadership is expected to help it grow profitably. Nokia is on track to achieve sustainable, profitable growth and technology leadership by accelerating its product roadmap and cost competitiveness through additional 5G investments. The 5G portfolio is gaining traction among enterprise customers. Nokia currently has 319 commercial 5G deals with communications service providers globally. It has 110 live 5G networks, both public and private.

Nokia is also focused on its strategy, which hinges on four priorities. The first priority is to lead in high-performance end-to-end networks with its communications service provider customers. The second one is the relentless pursuit to expand network sales to select vertical markets, specifically energy, transportation, public sector, technical extra-large enterprises and webscale players such as Google and Amazon. Building a strong standalone software business is the third priority. The fourth one is to create new business and licensing opportunities in the consumer ecosystem.

Key Growth Drivers for NOK Stock

To strengthen its leading position in the market, Nokia facilitates its customers to move away from an economy-of-scale network operating model to demand-driven operations by offering easy programmability and flexible automation needed to support dynamic operations, reduce complexity and improve efficiency. The company seeks to expand its business into targeted, high-growth and high-margin vertical markets to address growth opportunities beyond its traditional primary markets.

Its installed base of high-capacity AirScale products, which enables customers to quickly upgrade to 5G, is growing fast. The company is driving the transition of global enterprises into smart virtual networks by creating a single network for all services, converging mobile and fixed broadband, IP routing and optical networks with the software and services to manage them. Leveraging state-of-the-art technology, Nokia is transforming the way people and things communicate and connect. These include a seamless transition to 5G technology, ultra-broadband access, IP and Software Defined Networking, cloud applications and the Internet of Things.

Nokia Offering O-RAN With Commercial 5G Cloud-RAN Networks

Nokia is poised to benefit from copper and fiber deployments of passive optical networking. It is reportedly the only global supplier offering Open Radio Access Network (O-RAN) with commercial 5G Cloud-RAN networks. The company intends to accelerate strategy execution, sharpen customer focus and reduce long-term costs. At the same time, it is focused on building a strong scalable software business and expand it to structurally attractive enterprise adjacencies. Nokia's C-Band portfolio supports 5G standalone and non-standalone networks, cloud-based implementations and O-RAN products.

Margin Pressure: A Major Headwind for NOK

Nokia's Mobile Networks business is facing intensifying competition in some accounts as rivals seek to take share in the early stage of 5G. Some of its customers have re-evaluated their vendors in light of security concerns, creating near-term pressure for the company. AT&T Inc.'s T decision to replace Nokia with a single vendor in the form of Ericsson is expected to hurt net sales.

A slowdown of 5G deployments in India is another headwind. Owing to the challenging market situation, the company has reduced its operating margin target for fiscal 2026. Nokia's plan to improve its research and development (R&D) productivity and reduce support function costs is dependent on the successful execution of its cost-saving program.

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Softness in Key End Markets of Nokia

Despite improvement in the demand environment, weakness in several regions, including the Asia Pacific, Europe, Middle East and Africa, have hurt sales in the Network Infrastructure segment. In addition, the market recovery in the optical networks' vertical continues to be slower than the rest of the Network Infrastructure businesses.

Estimate Revision Trend

Earnings estimates for Nokia for 2024 have moved down 23.4% to 36 cents over the past year, while the same for 2025 has declined 35.2% to 35 cents. The negative estimate revision depicts bearish sentiments for the stock.

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End Note

Nokia has emerged as one of the leading players in the development of advanced 5G technology and is at the forefront of extending 5G use cases in various industries. It has laid a strong foundation of innovation through substantial infrastructure investments. This has led to the establishment of an impressive portfolio comprising approximately 20,000 patent families, including more than 6,000 patent families that are deemed crucial to 5G technology.

However, stiff competition and softness in key end markets are likely to put pressure on the bottom-line growth. The downtrend in estimate revisions further portrays skepticism about the stock's growth potential. High R&D costs eroded its profitability to a large extent. With a Zacks Rank #3 (Hold), Nokia appears to be treading in the middle of the road, and investors could be better off if they trade with caution.

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