1 Nvidia-Backed AI Infrastructure Stock to Buy Hand Over Fist Right Now

Nvidia is the most valuable company in the world, with a market cap of more than $4.7 trillion. It has become not just an earnings powerhouse for its investors, but also for its partners.

Last fall, Nokia (NYSE: NOK) inked a $1 billion partnership to develop an AI-enabled cellular phone network, called AI RAN, or radio access network. It will essentially result in the upgrade to 6G communications and AI capabilities for mobile networks, transforming cell towers into data centers and changing mobile communications.

For its part, Nvidia is providing the AI chips and platform on which the AI RAN 6G platform will run.

Image source: Getty Images.

As part of the deal, Nvidia will deploy Nokia's switches, SR Linux software, and optical technologies at its data centers.

At the time the deal with Nokia was announced, Nokia was trading at just $6 per share, and had been in penny stock territory a few weeks prior at $4.90 per share. Since then, Nokia stock has skyrocketed 133% to almost $14 per share, including a 114% gain year to date.

The company is anticipating a major surge in revenue from the partnership, which has created investor excitement and bolstered its stock price.

Should you go all-in on Nokia?

Nokia's stock price shot up following its first-quarter earnings release on April 23. The enthusiasm was less about its results, which were solid but not spectacular, and more about its outlook.

Nokia raised its guidance for the fiscal year. It's now calling for network infrastructure sales growth of 12% to 14% this fiscal year, up from 6% to 8% projected growth in January. The jump is based on the assumption that IP and optical networks revenue will grow 18% to 20% in 2026. The previous target was 10% to 12% growth. That increase in the outlook is related largely to the data center partnership with Nvidia.

The other piece of the deal, the 6G networking, will have a longer runway, with earnings accretion from the partnership likely starting to emerge in 2027 and for several years after as the 6G networks get built.

So, this could be a transformative partnership for the beaten-down telecommunications stock, which has been trading mostly in penny stock range for more than a decade.

The recent surge has increased Nokia's price-to-earnings (P/E) ratio to 86 with a forward P/E of 36, so it's still a bit pricey. Analysts are mixed on the stock, with about half rating it as a buy with a $12 per share median price target.

While the future looks brighter for Nokia, investors may want to be cautious and pick their spots, given the recent rapid surge in Nokia's price and valuation. It does appear to be a long-term grower, but investors may want to find a better entry point.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.