Translation: Original published in Finnish on 10/23/2026 at 09:06 am EEST

Nokia's Q3 adjusted EBIT clearly exceeded both our and consensus estimates, and strong orders from AI and cloud customers alongside Nokia's guidance for growth in optical and IP networks next year improve visibility into the growth path for the coming years. We raised our earnings estimates for the coming years by 6-7%, and the increased order book provides support for them. The valuation has returned to a justified level, despite which the risk/reward ratio remains subdued in our view. We raise our recommendation to Reduce (was Sell) and our target price to EUR 7 (was EUR 6.5 ).

Adjusted EBIT clearly beat estimates

Nokia's comparable Q3 EBIT (605 MEUR) clearly exceeded our (435 MEUR) and consensus (453 MEUR) expectations, but non-recurring items weighed on the reported EBIT, making it weaker than we expected. Revenue from AI and cloud customers more than doubled to 631 MEUR, and their orders (1.5 BEUR) remained at a strong level following the Q2 record. Network Infrastructure's EBIT strengthened in line with the path expected by consensus, but the biggest beat came from Mobile Infrastructure, where some revenue was brought forward from Q4. Fixed Networks' revenue decreased by 22% as the company trimmed its low-margin offering, which will likely weigh on group growth going forward as well. Free cash flow remained negative as Nokia tied up working capital to secure component availability for next year's growth.

Next year's growth relies on the order backlog

Nokia kept its guidance for 2026 unchanged (comparable EBIT of 2.1–2.6 BEUR) and expects that earnings will settle above the midpoint of the range, where our estimate (2.45 BEUR) also lies. However, Nokia provided a new estimate for its fast-growing businesses, based on which optical and IP networks will grow by a combined 25-30% next year. Our previously clearly more cautious estimate now sits at the upper end of the range (29%), and we suspect that supply-constrained demand and the order backlog, which will largely unwind next year, provide a solid foundation for it. This is driven by an industry-wide supply and demand imbalance, as AI investments have increased the demand for optical and IP networks and their components faster than supply. This imbalance supports volumes for the coming years and extends customers' ordering horizons, while driving up component prices and forcing Nokia to tie up working capital to secure availability. In tight markets, customers also place front-loaded orders, so orders may dip as delivery times shorten even if end demand remains unchanged. Regarding profitability, supplier cost pressures and the ramp-up of new products are limiting Network Infrastructure's gross margin, but we expect the operational leverage provided by growth to enable significant earnings growth in the coming years. Estimate changes w focused on Network Infrastructure, while estimates for other businesses remain largely unchanged. Our 2028 earnings estimate (3.5 BEUR), much like the consensus, exceeds Nokia's unchanged target (2.7–3.2 BEUR). There is upside estimate risk in better-than-expected operational leverage, which peers have already achieved, whereas the estimate risk lies in Nokia's delivery and competitiveness against market leaders. On the other hand, the sustainable level of data center investments can surprise in either direction by a significant margin.

Relative to growth, the valuation is no longer extremely tight

With our estimates, Nokia's adjusted P/E multiples for 2026-2027 are 22x and 19x and the adj.   EV/EBIT multiples are 16x and 13x, so following the share price decline, the valuation has moderated, but remains clearly above Nokia's historical level. We feel recurring one-off items and a weaker performance than peers weigh on the acceptable valuation. The neutral scenario of the sum of the parts (EUR 6.9) and our DCF value (EUR 7.0) are below the current share price. In the short term, we believe earnings growth is largely priced in and the expected return remains muted, so the risk/reward ratio is not currently attractive.