Cogent Communications: A High-Yield Buy Opportunity Amid Wavelength Growth and Strategic Deleveraging

In the evolving landscape of telecom infrastructure, value investors are increasingly turning their attention to companies that combine operational resilience with strategic reinvention. Cogent Communications (CCOI) stands out as a compelling case study, leveraging AI-driven connectivity demand to accelerate wavelength revenue growth while executing a disciplined deleveraging strategy. With a focus on repurposed Sprint assets, aggressive capital returns, and a clear-eyed approach to market share capture, Cogent presents an undervalued opportunity in a sector poised for structural transformation.

Wavelength Revenue: A Catalyst for Growth in the AI Era

Cogent's wavelength services have emerged as a standout performer, driven by surging demand for AI infrastructure. In Q3 2025, wavelength revenue surged 12.4% sequentially to $10.2 million, marking a 92.5% year-over-year increase. This growth is underpinned by Cogent's extensive network of 938 data centers, offering 10G, 100G, and 400G speeds to connect AI training facilities with the vast datasets required for large language models.

The company's CEO, Dave Schaeffer, has explicitly tied this momentum to AI adoption, noting that wavelength services are now the "top purchase driver" for gigabit connectivity according to Cogent's leadership. Cogent's current wavelength business operates at a $36 million annual run rate, with an ambitious target of $500 million by 2028. This trajectory is further bolstered by its repurposed Sprint network, which provides a cost-advantaged platform to serve hyperscalers and AI firms at scale.

Cogent's financial engineering efforts are central to its value proposition. As of Q3 2025, the company's net leverage ratio stands at 6.6x, with a clear target of reducing this to 4x before resuming dividend increases. A key pillar of this strategy involves monetizing non-core assets: Cogent recently secured $144 million from the sale of two data centers acquired via the Sprint acquisition. These facilities, part of 24 repurposed wholesale sites, now represent a liquidity boost without sacrificing operational capacity.

Capital expenditures have also been trimmed significantly, with Q3 2025 spending falling 35.5% sequentially to $36.3 million. This fiscal discipline, combined with cost-cutting initiatives, has positioned Cogent to return to pre-acquisition EBITDA margins of 40%. For value investors, this signals a company prioritizing balance sheet strength over short-term growth, a critical trait in capital-intensive sectors.

Sprint Integration: A Near-Complete Transformation

The integration of Sprint's legacy network has been a mixed bag for Cogent, but recent progress suggests the worst is behind. Revenue declines from Sprint assets have slowed from 10.6% to low single digits, while the company has "essentially completed" repurposing facilities into data centers. This operational clarity reduces uncertainty and allows Cogent to focus on high-margin wavelength services rather than legacy liabilities.

Disciplined Capital Returns: Rewarding Shareholders with Precision

Cogent's resumption of its share repurchase program in November 2025 underscores its commitment to shareholder value according to recent announcements. With $105 million allocated for buybacks, the company is signaling confidence in its liquidity position while rewarding investors at attractive valuations. This approach aligns with its broader deleveraging goals, as reducing shares outstanding enhances earnings per share without relying on debt.

Conclusion: A Value Play with Structural Upside

Cogent Communications embodies the principles of value investing: undervalued assets, operational rigor, and a clear path to profitability. Its wavelength business is capitalizing on the AI boom, while its deleveraging and capital return policies reinforce long-term shareholder value. For investors seeking exposure to telecom infrastructure without overpaying for hype, Cogent offers a rare combination of growth and prudence.

As the company inches closer to its 25% long-haul wavelength market share target, the alignment of macro trends and strategic execution makes Cogent a high-yield opportunity in a sector often overlooked by mainstream portfolios.