10. Cogent Communications Holdings Inc. (NASDAQ:CCOI)
Number of Hedge Fund Holders: 29
Cogent Communications Holdings Inc. (NASDAQ:CCOI) is an internet service provider that specializes in high-speed internet access and private network services. It caters to bandwidth-intensive businesses and communication service providers. Using its extensive fiber network and data center colocation offerings, it focuses on delivering cost-effective, high-capacity connectivity solutions.
The company’s network infrastructure is expanding rapidly. The company now operates 1,646 carrier-neutral data centers, alongside its own 104 data centers and 55 Edge data centers. This provides a total of 197 megawatts of power. Wavelength services are now available in 808 locations, and the company maintains connections with 8,250 networks. Wavelength services saw a significant surge, with quarterly revenue of $7 million, which was a 124% year-over-year increase.
Cogent Communications Holdings Inc. (NASDAQ:CCOI) is actively managing its sales force, which includes 288 professionals dedicated to the net-centric market, 347 to the corporate market, and 15 to the enterprise segment. The company’s net-centric segment, which was driven by video streaming and AI, generated $93.6 million in Q4 2024 revenue. The company now anticipates annual revenue growth of 5% to 7% per year.
Alphyn Capital Management has been optimistic about the company and 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.”
