T-Mobile's Attractive Valuation and 5G Growth Potential Post-3% Dip

The recent 3% dip in T-Mobile US (TMUS) shares has sparked renewed interest among investors, particularly given the company's robust financial performance and its leadership in 5G expansion. While some analysts caution that T-Mobile's Price-to-Earnings (P/E) ratio of 19.7x exceeds its fair valuation of 16.5x, a deeper analysis reveals a compelling case for undervaluation and long-term compounding potential. This argument hinges on T-Mobile's discounted cash flow (DCF) valuation, its aggressive 5G infrastructure investments, and the broader telecom sector's growth trajectory.

Valuation Discrepancy: P/E vs. DCF Insights

T-Mobile's current P/E ratio places it above sector peers like AT&T and Verizon, which trade at forward P/E ratios of 11x and 8x, respectively. However, this metric alone overlooks the company's intrinsic value. A DCF analysis projects T-Mobile's intrinsic value at $529.35 per share, suggesting the stock is undervalued by 60.4% based on Free Cash Flow (FCF) growth expectations reaching $29.5 billion by 2035. This divergence highlights the market's underappreciation of T-Mobile's long-term cash flow potential, particularly as 5G adoption accelerates.

The telecom sector's average P/E ratio in Q3 2025 was reported at 1.63 for integrated services and 1.62 for telecom services, though specific data for the sector's P/E remains opaque. T-Mobile's P/E of 19.7x appears elevated in isolation but must be contextualized against its high-growth 5G strategy. Unlike traditional telecoms, T-Mobile is reinvesting heavily in next-generation infrastructure, which justifies a premium valuation over time.

5G Growth Catalysts: Subscriber Momentum and Capital Expenditures

T-Mobile's 5G expansion is a critical driver of its long-term value. In Q3 2025, the company added 506,000 5G broadband customers, a 22% year-over-year increase, bringing its total 5G broadband base to 8.0 million. This growth is fueled by T-Mobile's aggressive capital expenditures (CAPEX), which surged 35% year-over-year to $2.6 billion in Q3 2025. The company has raised its full-year 2025 CAPEX guidance to $10.0 billion, underscoring its commitment to outpacing competitors in network coverage and speed.

These investments are not merely defensive but strategic. T-Mobile's 5G Fixed Wireless Access service, which competes with fiber providers, added 54,000 fiber customers in Q3 2025, demonstrating its ability to diversify revenue streams. Meanwhile, the telecom sector as a whole is projected to generate $1.53 trillion in global revenue in 2025, a 3% increase from 2024, with 5G and AI integration serving as key growth engines.

Financial Resilience and Strategic Positioning

T-Mobile's Q3 2025 results underscore its financial resilience. Service revenues rose 9% year-over-year to $18.2 billion, with postpaid service revenues up 12% to $14.9 billion. Core Adjusted EBITDA grew 6% to $8.7 billion, reflecting operational efficiency. The company also added 2.3 million postpaid customers in Q3 2025-the highest in over a decade, further solidifying its market position.

Strategically, T-Mobile is leveraging AI to enhance network performance and customer experience. While Deutsche Telekom's collaboration with Nvidia to create an AI Gigafactory highlights the sector's shift toward AI-driven infrastructure, T-Mobile's focus on high-value broadband subscriptions positions it to capture a larger share of the 5G value chain.

Conclusion: A Buy Opportunity in a Maturing Sector

Despite the recent dip, T-Mobile remains attractively valued when viewed through the lens of long-term compounding. Its DCF-derived intrinsic value, coupled with leadership in 5G adoption and disciplined CAPEX, suggests the stock is undervalued relative to its growth potential. While the telecom sector matures, T-Mobile's ability to innovate-through 5G, AI, and fiber expansion-ensures it remains a key player in the next phase of connectivity. For investors seeking exposure to a high-growth telecom stock at a discount, T-Mobile presents a compelling case.