Last Update 17 Jul 26
Fair value Decreased 2.30%ERIC B: Chip Cost Pressures And Leadership Change Will Constrain Future Upside
Analysts have trimmed the fair value estimate for Ericsson to SEK 68.00, reflecting a modestly lower blended price target as some firms reduce their SEK-based targets while others turn more constructive on the stock.
Analyst Commentary
Recent research on Telefonaktiebolaget LM Ericsson highlights a mix of views, with some firms trimming SEK-based price targets and others shifting to a more positive stance. For investors, the key takeaway is that opinions on Ericsson remain divided, particularly around execution and growth visibility.
One group of bearish analysts has reduced a prior price target to SEK 105, while others have set targets as high as SEK 115 alongside more constructive ratings. Together, these moves frame a valuation range that sits meaningfully above the trimmed fair value estimate of SEK 68.00 and underscore how sensitive Ericsson is to assumptions about future delivery on its plans.
Earlier target revisions, including SEK-based increases cited in recent research, show that analyst sentiment on Ericsson can shift quickly as new information emerges. This volatility in external views adds another layer of risk for investors who are closely tracking fair value versus target prices when assessing the stock.
Bearish Takeaways
- Bearish analysts cutting price targets to levels such as SEK 105 flag concerns that Ericsson may struggle to fully justify prior expectations embedded in higher target prices.
- The presence of both higher targets and more cautious revisions suggests uncertainty around Ericsson's execution, with some analysts questioning how reliably the company can translate its pipeline into sustained growth.
- With target ranges sitting above the fair value estimate of SEK 68.00, bearish analysts may see limited upside relative to perceived risks, particularly if progress on key initiatives is slower than expected.
- The mixed rating and target actions highlight the possibility that any stumble in performance or guidance could shift sentiment more broadly toward the cautious camp, putting pressure on valuation assumptions.
What's in the News for Telefonaktiebolaget LM Ericsson
- Ericsson reported Q2 2026 results with a 48.4% adjusted gross margin, SEK 52.69 billion in revenue that was 6.0% lower year over year and 2.5% below market estimates, diluted EPS of SEK 1.22, and 5% organic sales growth in Cloud Software and Services, alongside continued growth in the Enterprise segment. (Source: Q2 2026 earnings coverage)
- Rising memory and custom chip costs linked to the AI boom are affecting Ericsson, with the company outlining mitigation steps such as selective price increases and product redesigns to manage component cost pressure. (Source: Q2 2026 earnings coverage)
- CEO Börje Ekholm is stepping down after more than nine years. Per Narvinger has been appointed as the next Chief Executive Officer, effective October 1, 2026, and Ekholm will stay on as executive advisor until June 15, 2027. (Source: Q2 2026 earnings coverage and executive change filing)
- Ericsson has completed a SEK 3,300 million share buyback tranche, repurchasing 29,535,981 shares, or 0.89% of the company, under the program announced on April 27, 2026. This is part of a broader authorization of up to SEK 15,000 million in Class B share repurchases running to March 31, 2027. (Source: company buyback announcements)
- In collaboration with AT&T, Ericsson used its 5G network technology to detect and track drones around a major global sporting event in Texas, showcasing AI enabled sensing on existing towers. Separate work with AT&T and MediaTek introduced Low-Latency Mobility features aimed at reducing handover interruption for data heavy and time critical applications. (Source: company strategic alliance and product trial updates)
Valuation Changes for Telefonaktiebolaget LM Ericsson
- Fair Value: Trimmed slightly from SEK 69.60 to SEK 68.00, signaling a modestly lower central valuation point for Ericsson.
- Discount Rate: Risen slightly from 6.58% to 7.04%, indicating a higher required return being applied to Ericsson's future cash flows.
- Revenue Growth: Assumed decline has eased, moving from a 2.07% fall to a 1.43% fall, implying a somewhat less negative revenue profile for Ericsson than previously modeled.
- Net Profit Margin: Adjusted higher from 6.33% to 6.88%, reflecting a view that Ericsson could retain a slightly larger share of SEK revenue as earnings.
- Future P/E: Reduced from 20.0x to 18.0x, pointing to a lower valuation multiple being used for Ericsson's expected earnings.
Key Takeaways
- Rising geopolitical and regulatory complexities are driving up costs, shrinking margins, and forcing difficult operational adaptions across Ericsson's supply chain and core markets.
- Intensifying competition and sluggish network investment adoption threaten Ericsson's pricing power, revenue visibility, and long-term earnings growth.
- Strategic investments in AI, 5G applications, and global market expansion are driving sustained margin growth, operating efficiency, and more resilient, recurring earnings.
Catalysts
About Telefonaktiebolaget LM Ericsson- Provides mobile connectivity solutions to communications service providers, enterprises, and the public sector.
- Heightened geopolitical tensions and growing de-globalization, particularly ongoing US-China rivalry and escalating global tariff risks, threaten to fragment core telecom markets and force Ericsson into significant supply chain and operational redesigns, which will increase compliance and manufacturing costs and limit addressable revenue growth.
- Persistent pricing pressure from aggressive Chinese competitors and the trend toward commoditization of network infrastructure-amplified by the adoption of Open RAN standards-will erode Ericsson's ability to command premium pricing, leading to long-term margin compression and deteriorating profitability.
- Prolonged capex cycles and continued delays in broader 5G stand-alone and future 6G rollouts, especially in Europe and parts of Asia, signal that customer network investments will remain muted, resulting in structurally weaker revenue trajectories and diminished backlog visibility over the medium term.
- Escalating regulatory demands related to data privacy, security, and environmental standards across multiple jurisdictions are set to drive elevated compliance expenses and operational complexity, directly impacting net margins and cash flow generation.
- Excessive and recurring research and development outlays needed to maintain technological parity in a rapidly evolving landscape-amid intensifying competition from hyperscale cloud providers entering the telecom domain-will outpace incremental revenue gains, putting sustained pressure on free cash flow and long-term earnings growth.
Telefonaktiebolaget LM Ericsson Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?
- This narrative explores a more pessimistic perspective on Telefonaktiebolaget LM Ericsson compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
- The bearish analysts are assuming Telefonaktiebolaget LM Ericsson's revenue will decrease by 1.4% annually over the next 3 years.
- The bearish analysts assume that profit margins will shrink from 10.8% today to 6.9% in 3 years time.
- The bearish analysts expect earnings to reach SEK 15.0 billion (and earnings per share of SEK 4.49) by about July 2029, down from SEK 24.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as SEK26.4 billion.
- In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.0x on those 2029 earnings, up from 12.8x today. This future PE is lower than the current PE for the GB Communications industry at 32.2x.
- The bearish analysts expect the number of shares outstanding to decline by 0.83% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.04%, as per the Simply Wall St company report.
Risks
What could happen that would invalidate this narrative?- The accelerating rollout of 5G stand-alone networks and new enterprise and mission-critical applications-such as fixed wireless access, defense communications, and network slicing-are starting to drive service innovation and new revenue streams, which can underpin long-term revenue growth and margin expansion.
- AI is becoming embedded both in Ericsson's product offering and internal operations, with investments in AI infrastructure and intent-based autonomous networks poised to create efficiency gains and product differentiation, potentially increasing margins, lowering costs, and supporting future earnings growth.
- Ericsson has demonstrated broad-based margin improvements, with cost-reduction programs translating into sustainable lower operating expenses and higher gross and EBITA margins, which could drive continued improvement in net profits and return on capital.
- Strategic expansion in key global markets such as North America, India, and Japan-including local R&D investments and strengthened manufacturing footprints-positions Ericsson to gain market share and better insulate itself from geopolitical risks, enhancing long-term sales and profitability.
- Continuous improvement in Cloud Software and Services, with rising software mix and disciplined execution, is generating robust recurring earnings and EBITA margin growth, which may result in more stable and predictable long-term cash flows.
Valuation
How have all the factors above been brought together to estimate a fair value?
- The assumed bearish price target for Telefonaktiebolaget LM Ericsson is SEK68.0, which represents up to two standard deviations below the consensus price target of SEK97.0. This valuation is based on what can be assumed as the expectations of Telefonaktiebolaget LM Ericsson's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
- However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK133.0, and the most bearish reporting a price target of just SEK68.0.
- In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be SEK217.9 billion, earnings will come to SEK15.0 billion, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 7.0%.
- Given the current share price of SEK95.26, the analyst price target of SEK68.0 is 40.1% lower.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
