Key Points
Nokia has partnered with Nvidia to deliver equipment powered by Nvidia's GPUs.
Revenue growth is on track to accelerate.
If you haven't looked at Nokia (NYSE: NOK) stock lately, you might be surprised. Most consumers remember Nokia as a leading cellphone company that found itself pushed aside by the introduction of the smartphone.
However, Nokia has reinvented itself as a telecom equipment company, and the tech stock now trades at its highest levels in more than 10 years. Despite those gains, its long-term growth may have barely begun; here's why.
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The path forward for Nokia stock
So, what happened? The one reason investors have suddenly become interested in the stock is because of a deal with Nvidia. The two companies will create AI-RAN (radio access network) products powered by Nvidia's GPUs. This will tie Nvidia to the cellular network infrastructure business and give Nokia a competitive edge in optimizing 5G and later 6G networks.
Thanks to this deal, Nokia's stock is surging, with the stock rising by almost 50% over the last year.
Moreover, despite breaking out of a range, the stock may not stop moving higher, although it now sells at a 54 P/E ratio, with a forward earnings multiple of just 19.
The falling forward multiple is likely a product of the anticipated revenue growth, which usually boosts profits. Analysts forecast a 7% increase in revenue this year, and they expect that revenue growth rate to rise to 15% in 2027. Accelerating revenue growth tends to be bullish for stocks over time, giving prospective shareholders time to buy. Additionally, faster revenue growth tends to lead to expanding multiples, which could serve as another tailwind for the stock.
Hence, between the rising demand for Nokia's Nvidia-powered equipment and the company's improving financials, Nokia stock could become a surprising long-term winner.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
