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Who’s calling my phone? Upgrade to Buy Rating Change:BUY| PO:10.70 EUR| Price:8.03 EUR Optical and hyperscaler growth drives Nokia’s third actFollowing its former mobile phone dominance and transition to telco equipment, Nokia is now transforming into an optical powerhouse with a European advantage. On the backof its Infinera acquisition and CEO change in 2025,we believe Nokia has multiple leversas it rides growing momentum in the optical industry, a key bottleneck in the global AIdata center buildout. MI is set to improve margins via cost efficiencies and softwarefocus with further upside potential from Huawei/ZTE replacement in Europe and AIRAN/Nvidia partnership. We are 13-15% above the Street on‘26-28E EPS. We upgradethe stock to Buy from Neutral with a PO of€10.7/$12.4 (up from€6.87/$7.96) as wemove to a SOTP valuation from EV/EBITDA previously. Optical Networks:Driving beat and raise on CAGR guideOur bottom-up analysis models growth and penetration opportunities in optical systems, pluggables and data center switches, which we expect to lead Nokia to beat and raise its10-12% Optical & IP Networks CAGR guide. We expect Optical systems to continue tobe dominant with organic growth CAGR of 12% through 2028E, given Nokia’s significantcloud customer exposure post-Infinera (~30% in 2025). Nokia is also positioned to takeshare in Coherent pluggables starting in 2026E with the shift from 400G to 800G speeds. IP Networks: €400mm+ data center switch rev opportunityNokia’s IP Networks revenue is currently predominantly in the slow-growing router market, but we see significant opportunity in the data center switch market (SAMgrowing at 15% CAGR) especially for the sovereign data center buildout in Europe. Mobile Infra: Margin improvement, Huawei, AI-RAN, NVDAWe expect portfolio pruning, cost initiatives, and a focus on software to help improve operating margins in Nokia’s MI business from 13.4% in 2025 to 16.3%/17.7%/17.8% in2026/27/28E. Our Huawei/ZTE EU replacement model yields€1bn Nokia incrementalrevenue in MI (and€681mm in NI) in 2028E assuming 50% replacement. Finally, we viewNokia’s Nvidia partnership positively with potential AI and RAN revenue TBD. >> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analystunder the FINRA rules.Refer to "Other Important Disclosures" for information on certain BofA Securities entities that takeresponsibility for the information herein in particular jurisdictions. iQprofileSMNokia Company Description Nokia has two main operating segments. NetworkInfrastructure: 1) Optical Networks: supplying fibertransport and optical connectivity. 2) IP Networks: routing,switching, network software andautomation. 3) FixedNetworks: broadband access and fixed connectivity. MobileInfrastructure: 4) Radio Networks: radio access businessthat delivers RAN hardware. 5) Core Software: core-networksoftware and solutions. 6) Technology Standards:patent/IPR licensing activities. Investment Rationale We are positive on Nokia on (A) hyperscaler-driven growthin optical systems, (B) inflection in pluggable revenues onshift to 800G, (C) data center switch revenues associatedwith European sovereign data center buildout, (D) marginimprovement in Mobile Infrastructure on portfolio pruningand cost efficiencies, and (E) potential advantage in AI-RANon partnership with Nvidia Shares / ADR1.00Price to Book Value2.0x Investment Thesis in 6 Charts Global mobile RAN market revenue from 2018-30E ($mn) MobileInfrastructure EBIT from 2025-28E (€mn) Exhibit5: We forecast Optical & IP Networks to account for 34% ofNokia’s total revenue in 2027E…Revenue mix of Nokia for 2027E PM Summary – Investment Thesis Nokia is shifting to a new growth profile, on the back of its Infinera acquisition, newCEO and strategy, and ongoing demand for optical and IP connectivity in data centers.We expect Nokia to significantly beat its 10-12% Optical+IP Networks organic growthrate guide for 2026E, with BofAe at 15% growth, driven by hyperscaler-led opticalsystems growth and an inflection in pluggables and switch revenues. Project Optical Networks to grow above-guide driven by optical systems andpluggables We expect Optical Networks to grow above Street estimates, driven by continuedgrowth in optical systems and new incremental revenue in Coherent pluggables. Opticalsystems growth will continue as cloud customers (30% of mix in 2025) continue buildingout data center infrastructure, and we project ~13% organic growth in 2026E. Forpluggables, we expect 2026E to be an inflection year as the industry shifts from 400G to800G, with Nokia’s portfolio much better positioned in the latter. Overall, our bottom-upanalysis projects total Optical Networks revenue growing ~18% organically in 2026E,after growing mid-teens % organically in 2025. Expect IP Networks upside surprise on data center switch penetration in EuropeWe believe Nokia is well-positioned to capture significant share in the ra