We recently compiled a list of the 12 Best Telecom Stocks To Invest In Now. In this article, we are going to take a look at where Cogent Communications Holdings Inc. (NASDAQ:CCOI) stands against the other telecom stocks.
The global telecom services market was valued at $1.80 trillion in 2022 and is projected to grow at a 6.2% compound annual growth rate through 2030, as reported by Grand View Research. This growth is driven by factors such as 5G infrastructure investments, a rising number of mobile subscribers, increasing demand for high-speed data, and the growing need for managed services.
This industry has undergone a remarkable evolution since its inception. From early forms of communication like voice and basic visual signals transmitted over wired infrastructure, it has progressed to today’s sophisticated landscape of exchanging audio, video, and text content across diverse wireless networks. This evolution is marked by advancements in data speeds, transitioning from early technologies like GSM and CDMA to 3G, and 4G, and now the commercialization of 5G, enabling rapid data transfer that was once unimaginable.
According to Forbes, one of the driving forces for the telecom industry in 2025 will be the continued rollout and maturation of 5G technology. 5G will deliver faster speeds and improved connectivity and also unlock a new era of possibilities, such as enabling immersive experiences like VR/AR, powering advanced industrial applications, and driving innovation across a wide range of sectors.
While 5G is currently being deployed, attention is shifting to 6G, which promises to deliver significantly enhanced capabilities. IDTechEx recently reported that 6G will revolutionize communication by operating in the terahertz (THz) spectrum. This will enable unprecedented data rates (Tbps) and ultra-low latency. Beyond speed, 6G will unlock new applications like energy harvesting and advanced sensing. To achieve this, 6G will utilize higher frequency bands (7-20 GHz, W-band, D-band) for both access and backhaul. However, higher frequencies present challenges like atmospheric absorption and interference.
Overcoming these requires optimizing link budgets through advancements in semiconductor technology. While CMOS may suffice for lower frequencies, SiGe and InP technologies are crucial for higher frequencies. SiGe BiCMOS offers a good balance of performance and cost, while InP provides the highest performance. Furthermore, Antenna-in-Package (AiP) technology is vital for integrating antennas directly into semiconductor packages, crucial for high-frequency communication, particularly in the mmWave and sub-THz ranges.
Methodology
We sifted through the Finviz stock screener to compile an initial list of top telecom stocks to invest in. We then selected the 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An aerial view of an internet exchange point, illustrating the importance of an online service provider.
Cogent Communications Holdings Inc. (NASDAQ:CCOI)
Number of Hedge Fund Holders: 27
Cogent Communications Holdings Inc. (NASDAQ:CCOI) is a leading provider of high-speed internet, private network, and colocation services. It caters primarily to bandwidth-intensive businesses, including law firms, financial institutions, and other professional services, as well as other internet service providers. Its services include on-net and off-net internet access, private network solutions, and data center colocation space.
The earlier acquisition of Sprint Global Market’s wireline business by Cogent Communications Holdings Inc. (NASDAQ:CCOI) helped the company achieve $165 million in cost savings, representing 75% of the targeted $220 million in annual cost reductions, as of Q3 2024. The acquisition has expanded its network reach through the integration of 43 acquired Sprint facilities, increasing the total data center count to 95.
It also enabled the company to expand its service offerings to include optical wavelength services, which are now available in 200+ locations and are expected to expand to 800+ locations by the end of 2024. Cogent Communications Holdings Inc. (NASDAQ:CCOI) is well-positioned to capitalize on emerging market opportunities and solidify its position as a leading player in the telecom industry.
Alphyn Capital Management stated the following regarding Cogent Communications Holdings, Inc. (NASDAQ:CCOI) in its Q3 2024 investor letter:
“In its latest earnings release, Cogent Communications Holdings, Inc. (NASDAQ:CCOI) reported steady, albeit unspectacular, performance in its core operations. There has been some progress on extracting cost synergies from the Sprint acquisition, and there is some potential for value creation through monetizing “hidden assets” from its IPv4 and data center co-location fees. The company has made progress in realizing cost synergies from the spring acquisition and may unlock additional value by monetizing “hidden assets” such as its IPv4 holdings and data center co-location fees. However, the crux of the investment thesis remains the potential for significant revenue growth from waves. Without this catalyst, I believe the stock could drop to the low $60s, but with waves revenues materializing, the upside potential could exceed $150.
It is interesting to see what happened with Lumen, a competitor to Cogent, after announcing a $5 billion deal to build a custom network for Microsoft’s data centers on July 24th. The stock jumped from around $1.50 to approximately $7 per share. From my understanding and based on reading a short seller report,2 Lumen is primarily acting as a contractor in this deal, and it is estimated to retain only $800 million in one-time profits from construction and only $21 million in recurring profits.
In contrast, Cogent has the potential to generate over $500 million in recurring operating profits3 if it can successfully sell its wave revenues over the next few years. The capital expenditure is much more limited, as Cogent is connecting an existing infrastructure that all its customers can use instead of a bespoke construction for just one customer. While I don’t expect the same dramatic market reaction as Lumen’s, Lumen’s stock rally was partly due to relief from its potential bankruptcy risk as the influx of cash will help manage its substantial $18 billion debt; I do think this situation reflects the market’s appetite for companies providing infrastructure critical to AI and cloud development.”
Overall CCOI ranks 6th on our list of the best telecom stocks to invest in now. While we acknowledge the potential of CCOI as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CCOI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.