Why Nokia Stock Was Winning on Wednesday

Key Points

• An analyst shifted his stance on the European telecom.

• He now feels it's worthy of a buy recommendation.

• 10 stocks we like better than Nokia Oyj ›

Nokia (NYSE: NOK) was the subject of an analyst's recommendation upgrade Wednesday, and investors expressed their appreciation by bidding up the telecom's stock. In late-session trading it was up by more than 3% in price, well ahead of the S&P 500 index's 0.2% gain at that point in the day.

A recent acquisition could be a game changer

Well before market open, BNP Paribas Exane's Jakob Bluestone changed said recommendation, pushing it up a notch to outperform (buy, in other words) from his previous neutral. His price target on Nokia's Europe-listed stock is 4.30 euros ($5.01) per share.

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Image source: Getty Images.

According to reports, Bluestone's new outlook on Nokia derives largely from its latest big-ticket acquisition. Last June it acquired U.S. tech and telecom equipment supplier Infinera in a $2.3 billion deal; this closed in February.

The analyst believes that absorbing Infinera positions Nokia to benefit from investments into artificial intelligence (AI) capabilities, which go hand in hand with the current wave of data center build-outs (as those facilities are modified and expanded to handle the increased resource requirements of AI).

Bluestone pointed out that at the moment, Nokia's revenue from hyperscaler projects comprises only 5% of its overall top line. Given the high demand from such clients, that percentage could go well higher.

Business metamorphosis

At the dawn of the cellphone era, Nokia reigned supreme, particularly as a producer of handsets. It did not adjust well in the subsequent Age of the Smartphone, and since then has refashioned itself into a provider of the networking technology and associated offerings that underpin the telecom industry.

With Infinera it certainly has a chance of capturing lightning in a bottle; given that, Bluestone's new, bullish take feels realistic.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.