B. Riley initiated coverage of Nokia Oyj (NYSE:NOK) on September 17 with a Buy rating and a $15 price target, a stance that contrasts sharply with the company's recent financial deterioration. The firm highlighted Nokia's position in telecom infrastructure, cloud software, and hardware networking solutions, arguing that strong growth in these areas justifies the bullish outlook even as the bottom line takes a hit.
The research points to robust expansion in Nokia's networking businesses during the second quarter of 2026. Optical Networks revenue increased 20% year-over-year, while IP Networks grew 16%. Demand from AI and cloud customers surged 105%, driven by hyperscalers purchasing Nokia's AI networking products to support large-scale computing clusters. This demand is visible in the order book, where Nokia reported EUR 2.8 billion in AI and cloud order intake for the quarter. B. Riley noted that this intake provides visibility into 2027 revenue and that the carrier inventory correction cycle, which had previously weighed on global capital expenditures, has concluded.
To derive its $15 target, B. Riley used a sum-of-the-parts valuation, separating legacy assets from the data center business. The firm applied a premium hardware multiple to the data center segment, reflecting its view of potential operating leverage in that area.
However, profitability remains a significant concern. Nokia reported a EUR 50 million operating loss in the second quarter of 2026, a sharp decline from a EUR 147 million operating profit in the same period a year earlier. The operating margin fell to negative 1% from 3.3%. The company attributed this reversal to an accelerated pace of restructuring, noting it now expects total related charges of EUR 800 million in 2026. Consequently, free cash flow was negative EUR 732 million in the quarter. These costs create a near-term financial burden that offsets the strong demand from AI and cloud customers.
Market sentiment appears to be shifting despite the financial strain. According to Insider Monkey's database, hedge fund interest improved during the second quarter, with 81 funds holding Nokia shares at the end of the period, up from 66 in the first quarter. Short interest remained low at 1.04% of shares outstanding as of August 31, indicating limited bearish positioning.
Analyst sentiment is broadly positive as well. Of the 31 analysts covering Nokia, 61% rate the stock a Buy. The median 12-month price target stands at $13.33, which represents a 24.84% potential upside from the stock's price as of September 18.
The investment case now hinges on whether Nokia's AI and cloud business can translate into stronger financial performance. While the growth opportunity is significant given the EUR 2.8 billion order intake and 105% sales growth, the operating loss and negative free cash flow demonstrate that these benefits have not yet fully reached the bottom line.