Nokia, EBB Team Up to Upgrade AI Data Centers Across Malaysia

Nokia has secured a contract with Extreme Broadband (EBB) and Open DC to enhance and secure six AI data centers across Malaysia, deploying advanced IP network solutions, quantum-safe networking, and energy-efficient routers. This strategic move, which also includes an MoU for joint AI and data center connectivity go-to-market strategies, positions Nokia to capitalize on Malaysia's digital infrastructure growth, aligning with the nation's cloud policy. Despite this expansion and projected strong sales growth in its Network Infrastructure segment for 2025, Nokia's stock carries a Zacks Rank #4 (Sell) due to industry cyclicality and competitive headwinds, having underperformed its peers.

Analysis

Nokia has secured a strategic contract to upgrade six AI-focused data centers in Malaysia for Extreme Broadband and its subsidiary, Open DC, utilizing its advanced IP network, quantum-safe networking, and energy-efficient router technologies. This initiative, reinforced by a Memorandum of Understanding (MoU) for joint go-to-market strategies, positions Nokia to capitalize on the growing AI infrastructure demand and aligns with Malaysia's national cloud policy. However, this positive operational development is overshadowed by significant market and fundamental headwinds. The company's stock has lost 1.8% over the past year, severely underperforming the Wireless Equipment industry's 27.9% growth, and currently holds a Zacks Rank #4 (Sell). This negative sentiment is attributed to the high cyclicality of the telecommunications sector, intense competition, and macroeconomic pressures. While Nokia forecasts strong sales growth for 2025 in its Network Infrastructure, Cloud, and Network Services segments, it only expects stable net sales from its core Mobile Networks segment, presenting a mixed outlook where new growth ventures must prove they can offset challenges in the legacy business.

Key Decisions for Investors

• Investors should monitor the execution and financial contribution of these new AI data center contracts, as success in this growth area is critical to offsetting the anticipated stagnation in the core Mobile Networks segment.
• Given the stock's significant underperformance relative to its industry and the active 'Sell' rating, a cautious stance is warranted until there is clear evidence that recent strategic wins are translating into improved overall financial results and reversing the negative stock trend.
• It may be prudent to evaluate the positively-ranked, high-performing peers mentioned, such as InterDigital (IDCC) and Ubiquiti (UI), as potential alternatives for exposure to the technology sector given their superior stock performance and earnings beats.