We recently compiled a list of the 10 Best Telecom Stocks To Buy Right Now. In this article, we are going to take a look at where Extreme Networks, Inc. (NASDAQ:EXTR) stands against the other telecom stocks.
The telecommunications industry is at a critical juncture as it navigates an era of rapid technological advancement and escalating data demands. Over the coming years, global data consumption is expected to surge dramatically, nearly tripling from 3.4 million petabytes (PB) in 2022 to 9.7 million PB by 2027. This massive increase is driven largely by the growing consumption of video content, which will account for approximately 79% of this data. Despite this exponential rise in data usage, telcos face a challenging financial landscape. Revenue growth from internet access is projected to remain modest, with a compound annual growth rate (CAGR) of only 4%, reaching $921.6 billion by 2027. This slow revenue growth contrasts with the substantial capital required for network upgrades and expansions.
According to PWC report “Perspectives from the Global Telecom Outlook 2023–2027”, to meet the rising data demand and stay competitive, telecommunications companies will need to invest heavily in infrastructure. The ongoing transition to 5G technology and the deployment of other advanced network standards will drive significant expenditures. By 2027, telcos are expected to invest around $342.1 billion in network enhancements. This includes the expansion of fibre networks and the adoption of Open Radio Access Networks (Open RAN), which aim to improve interoperability among devices and providers.
In response to these evolving demands, telcos are increasingly focusing on diversifying their service offerings beyond traditional connectivity. The Internet of Things (IoT) represents a major growth opportunity, with expectations for a substantial rise in connected devices. The number of IoT devices is projected to increase from 16.4 billion in 2022 to 25.1 billion by 2027. This growth will be driven by innovations in various sectors, including healthcare, where medical IoT devices are anticipated to double, reflecting a CAGR of 16.7%. The expansion of private 5G networks and edge computing services will further enhance the capabilities of telcos to meet the diverse needs of their business customers.
The shift towards advanced technologies like 5G presents both opportunities and challenges. The initial wave of capital expenditures on 5G infrastructure is nearing its peak, with future investments likely to focus on optimizing and scaling existing networks rather than extensive new deployments. This trend is expected to impact the financial strategies of telecom companies, as they will need to manage substantial investments while also seeking efficiencies and cost control. The growth in capital expenditure for 5G and fibre infrastructure will be accompanied by a rising focus on operational efficiency and monetization strategies.
In addition to network enhancements, telcos will need to foster collaboration across the broader ecosystem to thrive in this evolving landscape. Partnerships with technology providers, cloud services, and other stakeholders will be crucial for developing and delivering advanced services. Companies that excel in integrating these diverse technologies and creating seamless solutions will be better positioned to capture emerging opportunities in areas such as private networks and digital infrastructure.
The telecom industry is entering a period of significant transformation, characterized by rapid technological advancements and evolving consumer demands. To succeed, telcos must navigate the complex challenges of heavy investment requirements while exploring new growth avenues. Strategic partnerships, operational efficiency, and a focus on innovative technologies will be essential for companies aiming to excel in this competitive and dynamic environment.
Our Methodology
We used telecom sector ETFs plus online rankings to compile an initial list of the best telecom stocks to buy now. We narrowed our list to the 10 stocks that analysts see the most upside to. The list is sorted in ascending order of analysts’ average upside potential, as of August 13. Note: We only included companies whose primary business is in the telecom industry.
At Insider Monkey we are obsessed with 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).
A customer service person helping a client with a complex network issue, illustrating the customer support of the communication equipment company.
Extreme Networks, Inc. (NASDAQ:EXTR)
Average Analyst Share Price Target Upside: 17.69%
Average Analyst Share Price Target: $15.90
Extreme Networks, Inc. (NASDAQ:EXTR) has seen a 40% drop in its stock price, largely due to a decline in equipment sales as distribution channels realign after COVID-induced shortages. Despite this, the company remains strong in SaaS and support revenue growth and generates healthy free cash flow. Analysts are divided on the stock’s future, with some forecasting a rebound, but recent insider sales suggest a cautious approach may be prudent. On August 7, Extreme Networks, Inc. (NASDAQ:EXTR) reported earnings with normalized EPS of -$0.08, missed by $0.21. Revenue was $256.65 million, surpassing expectations by $3.44 million. Despite the EPS shortfall, the revenue beat suggests stronger-than-anticipated sales performance and potential resilience. Extreme Networks, Inc. (NASDAQ:EXTR) has an average analyst price target of $15.90, representing a potential upside of 17.69%.
Alger Small Cap Growth Fund stated the following regarding Extreme Networks, Inc. (NASDAQ:EXTR) in its fourth quarter 2023 investor letter:
“Extreme Networks, Inc. (NASDAQ:EXTR) specializes in comprehensive, cloud-native networking solutions, combining the design and production of network infrastructure equipment with its exclusive cloud management platform and a wide range of applications. We consider their Wi-Fi and switching equipment and software to be among the top choices for enterprises, managed efficiently over the cloud. Their latest offering, universal equipment, now integrates computing, security, and Al capabilities directly at the enterprise level. This expands their Total Addressable Market (TAM) significantly. During the quarter, the company reported strong fiscal first quarter results, where revenues beat analyst estimates, resulting in margin expansion and higher than expected free cash flow generation. However, management lowered their fiscal full year revenue guidance, citing macroeconomic weakness as enterprises continue to delay network upgrades. As a result, shares detracted from performance.”
Overall EXTR ranks 4th on our list of the best telecom stocks to buy. While we acknowledge the potential for EXTR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EXTR 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.
