Nokia's Scalable Play in the $934B AI Data Center Market

The investment case for Nokia hinges on its transformation from a telecom equipment supplier into a scalable platform for the AI infrastructure boom. The market opportunity is vast and accelerating. The global AI data center market is forecast to expand from $236.44 billion in 2025 to $933.76 billion by 2030, representing a compound annual growth rate of 31.6%. This isn't just a niche trend; it's a fundamental shift in computing demand, driven by hyperscaler investments that now dwarf traditional telecom spending.

Nokia is positioning itself to capture a significant share of this growth. Its AI and Cloud segment, a direct result of its strategic acquisition of Infinera, currently accounts for about 6% of group revenues. The critical metric for a growth investor is the trajectory. This segment has been increasing by about 1 percentage point each quarter, a consistent and accelerating ramp. If this pace continues, the segment could reach 30% of total sales within a few years-a massive re-rating of the company's revenue profile.

This isn't a one-off product play. The broader data center sector, which includes AI infrastructure, is projected to grow at a 14% CAGR through 2030, requiring up to $3 trillion in investment. Nokia's core strength in optical networking provides the essential connectivity between and within these new data centers. The company's order momentum reflects this: optical networking orders are up more than 40%, and data center switching orders have surged over 150% year-over-year. This positions Nokia not just as a participant, but as a foundational supplier for the physical layer of the AI economy.

The bottom line is a scalable platform. Nokia's current 6% segment is a small base, but its quarterly growth rate suggests a powerful compounding engine. As the AI data center market explodes, Nokia's exposure to this high-growth sector is set to become the dominant driver of its future revenue and earnings.

Scalability and Technological Leadership

The strategic acquisition of Infinera was a pivotal move to scale Nokia's optical transport business. The deal, which closed in June 2024, increased Nokia's scale by 75%. More importantly, it created a highly scaled and truly global optical business with enhanced in-house technology and vertical integration. This scale is the bedrock for capturing the AI data center market, where winning requires both massive production capacity and deep technical expertise.

The integration is already showing powerful results. In its first full quarter after the acquisition, Nokia's cloud customer revenue grew by over 50%. This explosive growth in its fastest-growing customer segment-hyperscalers and cloud operators-validates the strategic fit. It demonstrates that the combined entity can not only meet but exceed the demand for AI-ready connectivity, as evidenced by additional orders for 800ZR+ pluggables for regional AI clusters.

To secure its technological leadership and accelerate innovation, Nokia is making a major commitment. The company has committed to spending $4 billion to expand its manufacturing and R&D capabilities in the United States. This investment aims to accelerate R&D in AI-ready technologies across mobile, fixed access, IP, optical, and data center networking. It also strengthens manufacturing, a critical factor for supply chain resilience and scaling production to meet hyperscaler demand.

This U.S. investment, coupled with the Infinera acquisition, creates a formidable platform. It allows Nokia to compete on both scale and speed. The company is not just building more products; it is building them faster and with more advanced capabilities. This is essential for maintaining a technological edge in a market where standards evolve rapidly and customers demand next-generation solutions like 800ZR+ and beyond. The strategic fit is clear: scale from Infinera, accelerated growth from cloud customers, and a future-proofed R&D engine from the U.S. investment.

Financial Impact and Valuation Context

The growth story now needs to be translated into financial metrics. The Infinera acquisition is not just strategic; it is a direct lever for earnings power. Management projects the deal will deliver over 10% comparable EPS accretion in 2027. That target, backed by a commitment to achieve EUR 200 million in net operating profit synergies by then, provides a clear, multi-year roadmap for margin expansion and shareholder returns. This is the tangible payoff from the scale and integration discussed earlier.

The market is beginning to recognize this shift. In a significant move, Morgan Stanley recently upgraded Nokia to an "overweight" rating and raised its price target to €6.50. The firm cited the company's increased exposure to data center and AI-driven demand as a core reason. This upgrade, which also added Nokia to its Top Pick list, signals a growing institutional view that the revenue mix is changing faster than consensus earnings estimates reflect.

Yet, a valuation gap remains. Morgan Stanley explicitly argues that valuation levels remain similar to historical averages during previous technology cycles, at about 9 times EBIT, and this does not fully reflect Nokia's increased exposure to AI-related network demand. In other words, the stock trades at a multiple that discounts its current 6% AI/cloud segment, not its projected 30% future profile. This disconnect is the opportunity. The company's financials are being built for a high-growth future, but the market price has not yet fully priced in that dominance.

The bottom line is a setup where future earnings power is accelerating, but the current price tag lags. For a growth investor, this is a classic scenario: the engine is being built, and the financial projections show a powerful trajectory, but the valuation still looks like that of a slower-moving legacy business. The path forward depends on the company consistently hitting its growth targets and the market eventually adjusting its multiple to match the new reality.

Catalysts and Key Metrics to Watch

The growth thesis now faces its validation phase. The coming quarters will test whether Nokia's strategic bets translate into sustained, measurable momentum. Investors must watch three critical checkpoints.

First, the sustainability of the AI/Cloud segment's explosive growth is paramount. Management has guided that this business, currently at about 6% of group revenues, is increasing by about 1 percentage point each quarter. The near-term catalyst is the next few quarterly reports. If the segment continues to accelerate at this precise pace, it will confirm the scalability of the Infinera integration and the strength of demand from hyperscalers. A deviation from this trajectory would be a major red flag for the entire investment thesis.

Second, execution on the company's major capital commitments is a key operational milestone. The $4 billion commitment to expand U.S. manufacturing and R&D capabilities and the targeted EUR 200 million in net operating profit synergies from the Infinera acquisition by 2027 are not abstract promises. The timeline for spending this capital and realizing those synergies will be scrutinized. Progress here will determine if Nokia can scale production to meet demand and if the integration is driving the promised cost and margin improvements.

The most significant risk to navigate is competitive pressure. Hyperscalers are not just customers; they are also potential in-house competitors. The risk is that these massive tech firms, with their own vast resources, could build or source their own advanced optical components, compressing margins for external suppliers like Nokia. This is a structural headwind in a market where technological leadership and cost efficiency are everything. The company's ability to maintain pricing power and secure long-term design wins against this threat will be a decisive factor in its long-term profitability.

The bottom line is that Nokia is now in a race against time and competition. The catalysts are clear: quarterly growth rates, capital expenditure execution, and margin defense. Each will provide a data point on whether the company is successfully capturing its share of the AI data center supercycle or facing the friction of a crowded and evolving battlefield.