Could This Underrated AI Company Break Out Next Year?

In the tech world, Nokia (NYSE: NOK) has long been an afterthought. The company has struggled since 2007, when Apple's iPhone came out of nowhere to make its once market-leading cellphones obsolete. Even though it pivoted into telecom equipment in later years, its success has been limited.

However, after announcing a partnership with Nvidia on Oct. 28, its stock price spiked. Even though it gave back some of those gains, investors may have good reason to be excited about Nokia for the first time in decades. Here's why the long-awaited breakout in this company could finally happen in 2026.

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Nokia's new partnership

Nokia remade itself into a telecom equipment manufacturer some years ago. Hence, partnerships are not new for the company. It has entered into artificial intelligence (AI)-related alliances with various companies and formed a defense-related deal with Lockheed Martin and Verizon Communications in March.

But it's the partnership with Nvidia that's attracted investor interest. The goal of the agreement is to leverage each other's capabilities, accelerating the development and deployment of AI-ready networking infrastructure, which will enable next-generation mobile networks that are AI native.

Under the terms of the agreement, Nokia will integrate its 5G and upcoming 6G solutions with Nvidia's technology. These solutions will aid the development of new AI-related services, helping to support the massive growth in AI traffic. Through this agreement, both companies can advance edge computing and optimize each other's cloud-based solutions and virtualization networks.

Furthermore, aside from its faster speeds and near-zero latency, 6G is expected to support smart cities and autonomous cities, making it a critical component in AI development.

This new deal could create investor opportunities

This agreement could also help Nokia investors. Admittedly, the stock is up by almost 42% so far this year, indicating that a bullish view on the stock has already begun. However, since the Oct. 28 announcement, the stock seems to have suffered from a "sell the news" phenomenon, as it has since given back some gains.

Nokia just announced the deal in October. While the agreement could boost revenue with the improved 5G technology in the foreseeable future, 6G specs are not expected to be finalized until late 2028. Therefore, it will probably take time for the agreement to fully bear fruit in Nokia's financials.

For now, the financials reflect continued struggles along with early signs of optimism. Its revenue of 13.7 billion euros ($16.0 billion) in the first nine months of 2025 rose by only 4%, though Q3 revenue rose 12% year over year amid strong AI and cloud-driven growth in its optical networks business. Also, the rising cost of sales weighed on financials as net income for the first three quarters of 2025 was 116 million euros ($136 million), down from 471 million euros in the same year-ago period.

Investors should also note that it earned 80 million euros of that profit in Q3. That falling profit also raised its P/E ratio to 36. That may sound a little high, given the S&P 500 average P/E ratio is 31. Nonetheless, its forward P/E ratio of 21 points to both a likely profit increase and a low valuation, helping it attract more investor interest.

Is Nokia stock set to break out?

Thanks to its agreement with Nvidia, Nokia's stock could break out in 2026. Admittedly, the agreement is too new to significantly affect its financials yet, and 6G is still a few years away from implementation.

However, upon closer inspection, it is apparent that Nokia and Nvidia have a lot to offer one another. Now, thanks to this partnership, Nokia will likely play a key role in supporting Nvidia's AI, and a rollout tied to its 5G technology could boost Nokia in subsequent quarters.

Thus, the agreement appears to pave the way for Nokia's long-term success in AI, which should lead to growth in Nokia stock over time.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool recommends Lockheed Martin and Verizon Communications. The Motley Fool has a disclosure policy.