Nok is breaking out and really to rally. Here is my thesis.
Excited for this one from a fundamental and technical perspective and wouldn't be surprised to see it double eventually. Here's why:
If data center demand is strong (which it is) the future won't be able to do it without optics.
To achieve the needed speeds, data centers are moving away from traditional copper wiring and shifting entirely to optics (like Indium Phosphide lasers and silicon photonics).
And NOK is well positioned for this:
• They own Infinera after a major acquisition last year, a major optical networking company, which means they own a major share in the manufacturing for Indium Phosphide, a key material used in high-speed optical chips. COHR and LITE are the other major players. Indium Phosphide supply is extremely limited and Nokia has its own in house process.
• In addition to a 20-fold expansion at its legacy Infinera fab in San Jose, Nokia finalized a definitive agreement to acquire NXP Semiconductors' massive manufacturing campus in Chandler, Arizona. Nokia is completely repurposing this campus into a dedicated InP photonic chip production facility.
• While Coherent and Lumentum focus heavily on raw chip fabrication, Nokia holds a massive competitive advantage in backend advanced packaging and testing.Through its Allentown, Pennsylvania facility, Nokia expanded its domestic photonic packaging throughput by 10 times. This means Nokia can build the raw InP chip and package it into completed optical engines entirely on U.S. soil.
Exploding Order Momentum
- Nokia’s Q2 financial data confirms that its AI narrative is reality, not hype. Net sales to AI & Cloud customers grew 105% year-over-year. The company booked a massive €2.8 billion in AI & Cloud orders in a single quarter. Crucially, Nokia's total accumulated AI technology orders have swollen to 6.3 times its current quarterly revenue for that segment. This massive backlog creates clear revenue visibility through 2027 and 2028.
Margin Expansion via Vertical Integration
-Because Nokia owns its own Indium Phosphide fab capacity and advanced packaging, it does not have to pay a markup to merchant suppliers like Coherent or Lumentum. This vertical integration protects Nokia from supply chain constraints and expands margins.
Geopolitical Backstop
-Regulators are moving to restrict Chinese optical transceivers. As one of the few companies capable of manufacturing, packaging, and testing InP optical engines entirely on U.S. and European soil, Nokia is capturing a captive, high-security market. Following its recent financial reports, analysts from Bank of America lifted their price target to $18.50, and JPMorgan extended a target of $21.00. It's currently trading at $10.
