Why Nokia Rallied Even on a Terrible Day for Tech Stocks
Shares of Nokia (NYSE: NOK) rallied 4.4% on Monday, despite the Nasdaq Composite (NASDAQINDEX: ^IXIC) plunging 2.64% today, with many tech hardware stocks dropping much more than that.
How did Nokia defy the odds? The company announced a partnership between itself, Verizon, and Lockheed Martin. The new partnership has apparently achieved a breakthrough in hybrid 5G communications, which could open up more of the defense market to Nokia's 5G hardware.
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Looking into defense communications
On Sunday, Nokia announced that it had integrated its 5G technology into Lockheed Martin's telecommunications base stations. In a blog post, a Nokia engineer outlined how the integration marked a "significant milestone," as it showed how commercial 5G equipment can become integrated into military equipment with tougher security and performance requirements. So, the new breakthrough has the potential to open up more defense and government-oriented mobile networks sales, it seems.
Also perhaps boosting sentiment, Nokia just completed its acquisition of Infinera, which closed on Friday, for $2.3 billion including debt. Infinera had been somewhat of a darling in optical transceivers, which enable ultra-fast optical communications for the telecom market, and which may also play an increasing role in the data center interconnect markets that could benefit from the AI rollout.
Nokia isn't glamorous, but it has been a near-term winner
Nokia isn't the most glamorous name. It's a European stock, and operates in the cyclical, somewhat slow-growth telecommunications equipment sector. However, the stock is also up more than 40% over the past year, even though revenues are still below 2023 levels.
That being said, things are beginning to recover, with sales up 9% last quarter, along with increased margins. Nokia also has a strong balance sheet, with net cash of 4.9 billion euros as of Dec. 31.
With many high-flying growth stocks tumbling, Nokia is showing how a prudently run value stock can outperform in today's higher-rate environment.
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Billy Duberstein and/or his clients has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and Verizon Communications. The Motley Fool has a disclosure policy.
