NOK Stock Recommendation: Why Nokia Deserves A Price Target of $5.30

motek 1The NOK stock recommendation article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

  • I reiterate the buy rating I gave Nokia’s stock last May 11. The stock has since risen +20% but I’m highly confident it still has more upside potential.
  • Recent 5G contract wins convinced me that NOK deserves a 1-year price target of $5.30
  • NOK’s 1-month price return is +17.34%. This is thanks to the new U.S. sanctions against Huawei. Going forward, I expect this stock to have a YTD gain of +30% or more.
  • Analysis of weekly technical indicators and recent moving averages produced a buy endorsement for Nokia’s stock.
  • Cloud computing giants Tencent and Baidu recently chose Nokia as their supplier for optical data center interconnect or DCI networks.

The big +17.34% 1-month price return of Nokia’s (NOK) stock is pretty awesome. NOK was trading below $3.65 when I made my May 11 buy recommendation for it. The new U.S. sanctions against Huawei was behind this new optimism over NOK. Going forward, the threat of severe punishments against companies that will supply American-designed or American-made hardware and software products to Huawei is a giant tailwind for Nokia. These new anti-Huawei move of the U.S. government is why NOK deserves a 1-year price target of $5.30.

(Source: Seeking Alpha Premium)

Huawei’s ostracization in the international market will boost Nokia’s market share in the telecom equipment industry. It will also bolster Nokia’s presence in the global data center infrastructure business. For the past five years, Nokia has lost substantial market share due to Huawei.

Many customers are turning their backs on Huawei. Some of them are embracing Nokia as their new data center  partner. NOK is a buy because cloud computing giants Tencent (TCEHY) and Baidu (BIDU) chose Nokia as their supplier of data center interconnect (DCI) webscale solution. Nokia’s DCI solution is now being used by 13 of China’s webscale providers.

China’s scalable data center/cloud computing platforms industry is very competitive. Firms like Tencent and Baidu chose Nokia’s DCI solution because they believe it will improve their margins. Going forward, the long-term profitability of Nokia is enhanced by its ability to help cloud computing companies like Baidu make more profits. Huawei also offers its DC Optix DCI solution but Nokia still got chosen by Chinese firms Baidu and Tencent.

(Source: Nokia)

Nokia’s webscale or massively scalable DCI solutions are based on the modular Nokia 1830 Photonic Service. Baidu and Tencent will be using Nokia’s DCI solution and the new Photonic Service Engine 3 to optimize and maximize the performance and capacity of data centers servicing 4G/5G traffic, machine learning, edge AI computing, deep learning, and autonomous driving.

Why This DCI Webscale Contract Win Matters

Tencent and Baidu are the no. 2 and no. 3 cloud computing infrastructure providers in China. The cloud computing infrastructure business in China is worth $13.2 billion/year. My fearless forecast is that Alibaba (BABA), the no. 1 in China’s cloud services, will also eventually chose Nokia’s DCI solutions to accelerate its public and private cloud platforms.

(Source: Canalys)

Alibaba quickly became the no. 5 in the $100 billion global cloud infrastructure services industry because of its low-ball pricing. Nokia’s cost-efficient DCI solution could help Alibaba offer lower public and private cloud instances to its Chinese and Asian customers. 

Thanks to the heavy headwinds against Huawei, Nokia now has a bright future in the data center infrastructure industry. NOK is now a better long-term investment because of its role in the $155.2 billion/year data center infrastructure business. This industry is expected to grow at 6.79% CAGR and it will be worth $230.17 billion by 2025. However, the pandemic has forced people and corporations to use more internet bandwidth. My own takeaway is that the data center infrastructure industry can experience 10% or more CAGR for the next five years.

The new normal of work-from-home and learn-from-home means Nokia will more of its webscale DCI solutions to more cloud computing service providers. NOK is a buy because it offers complete IP/optical and SDN solutions toward data center interconnection and cloud interconnect.

(Source: Nokia)

Nokia has given up on trying to win more 5G Radio infrastructure contracts in China. However, its data center business in China can still flourish through its DCI webscale solution. Nokia has other products for the data center industry. It also competes in switches and routers against Cisco (CSCO) and Huawei. Nokia is a buy because it is now no. 1 in IP Edge Routing according to Dell’Oro.

(Source: Nokia)

NOK is a buy because it is involved in the $39.3 billion global router and Ethernet switch business. Nokia’s rosy future is not only dependent on the coming 5G revolution. Nokia is a total network hardware company that caters to data centers, cloud computing service providers, video games companies, streaming entertainment firms, telecom companies, governments, and corporations.

More importantly, Nokia is again selling itself as 5G smartphone company. Its Android phones products are managed by HMD Global but we all know Nokia is behind it. The new managers at Nokia has realized that it will always be known as the former leader of phones. Promoting Nokia Android phones raises its global profile.

(Source: Nokia)

Conclusion

My $5.30 price target for Nokia’s stock is very reasonable. With Huawei becoming more ostracized outside of China, we can expect Nokia to win more 5G deployment and data center contracts. As per Dell’Oro’s recent report, Nokia ended Q1 2020 with just 15% market share in the telecom equipment industry. The new sanctions against Huawei were issued only last month.  One year from now, Nokia will probably enjoy 20% market share.

(Source: Light Reading)

If Nokia regains 20% of the $44.6 billion telecom equipment industry, investors will gladly push its stock above $5.30. My buy rating for NOK is greatly influenced by its bullish one-year forecast trend score from I Know First.

Don’t be intimidated by NOK’s big 1-month +17.34% price return. Exponential Moving Averages still say Nokia’s stock still has enough momentum to go higher.

(Source: StockTA)

Past I Know First NOK Stock Recommendation Success

I Know First gave bullish NOK stock recommendation in the past. On May 10 2020, the I Know First algorithm issued a bullish NOK stock recommendation and the algorithm successfully forecasted the movement of the NOK stock.  Up to June 23 2020, NOK shares rose by 20.95% in line with the I Know First algorithm’s forecast. See chart below.

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