AT&T Shares Rise 6.9% in Six Months: How to Play the Stock?

AT&T, Inc. T has gained 6.9% over the past six months compared with the Wireless National industry’s growth of 2.9%. The stock has also outperformed the Zacks Computer & Technology sector and the S&P 500’s growth during this period.

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The company has underperformed its peers like Verizon Communications Inc. VZ and outperformed T-Mobile US, Inc. TMUS. Verizon has gained 15.3%, while T-Mobile has decreased 9.4% during this period.

T Rides on Network Upgrades & Customer-Focused Strategy

AT&T has recently inked a major agreement related to FirstNet, a nationwide emergency communications network in the United States. Per the agreement, a $1 billion investment is set to go to upgrade and expand network infrastructure, and another $1 billion will be used for offering reduced service rates to the government. This brings several benefits for FirstNet services. Greater coverage in rural, remote areas, faster data speeds for emergency services, and priority access to first responders during natural disasters or public events will significantly boost public safety operations nationwide.

The company has recently pledged a $250 billion investment commitment over the next five years in the United States. The investments will be directed to building one of the largest network infrastructures with unmatched capabilities and coverage across urban, suburban and rural America.

AT&T’s customer-focused approach is a major growth driver. The company is developing an AI-ready network design and collaborating with Amazon Web Services to extend 5G and fiber connectivity from business clients directly to the AWS ecosystem. This will enable businesses to streamline on-premise to cloud connectivity and also allow them to scale AI workloads with greater confidence and control. The company recently introduced a new app to help customers manage both wireless and home Internet services together. The app features a modern design, artificial intelligence (AI) support with simple controls, creating a more personalized and seamless digital experience. This introduction highlights AT&T’s commitment to improving customer experience through innovation and making digital services simpler, more efficient and user-friendly.

Such initiatives are steadily driving customer growth. The company witnessed solid subscriber momentum in the fourth quarter with 641,000 post-paid net additions. AT&T added 283,000 fiber customers during the fourth quarter and firmly remains on track to pass more than 50 million fiber locations by the end of 2030.

Stiff Competition, Heavy Capex Burden Impact Cash Flow and Margin

The U.S. wireless market is highly competitive and saturated. AT&T faces stiff competition from other major players in the industry, such as Verizon and T-Mobile. Owing to high saturation, adding new subscribers often led to higher acquisition costs. Growing spending on discounts and promotional activities lowers ARPU growth.

The telecom industry is undergoing rapid technological changes and transformations. Boundaries between telecom, fiber and media are blurring. Competition is also expanding beyond traditional players, with relatively newer entrants such as Charter and Comcast entering the market.

Amid such growing competition, AT&T has to steadily invest in network upgradation to retain its user base. Continuous spectrum purchases, fiber buildout, network densification and AI-related investments are putting pressure on cash flow generation. Return from these investments depends on long-term adoption, and there is no immediate payoff. This will create pressure on profitability in the near term.

It is to be noted that the telecom sector depends on network equipment and devices from outside the country. Growing geopolitical unrest, rising energy prices and logistics costs can disrupt the global supply chain. This can impact the operations of telecom companies, at least in the near term.

Estimate Revision Trend of T

Earnings estimates for AT&T for 2026 and 2027 have increased over the past 60 days.

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Key Valuation Metric of T

From a valuation standpoint, AT&T appears to be trading relatively cheaper compared to the industry and trading below its mean. Going by the price/earnings ratio, the company shares currently trade at 12.3 forward earnings, lower than 13.25 for the industry.

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End Note

AT&T’s strategy of investing in network upgradation to improve service consistency and reliability for end users will likely bring long-term benefits. Collaboration with industry leaders such as Amazon and the development of AI-ready network architecture are positive factors. The company remains focused on business transformation efforts to augment operational efficiency and facilitate optimum utilization of resources to enhance value. However, intensifying competition and growing spending on promotion to acquire customers escalates margin pressure. Heavy capex spend will impact cash flow growth in the near term. Growing geopolitical unrest, rising energy prices and macro headwinds are major concerns. With a Zacks Rank #3 (Hold), AT&T appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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