We recently published a list of the 13 Best Telecom Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Cogent Communications Holdings, Inc. (NASDAQ:CCOI) stands against other best telecom stocks.
The global telecom services market is estimated at $1.98 trillion as of 2024, according to Grand View Research. It is projected to grow at a CAGR of 6.5% from 2025 to 2030. This expansion is driven by the increasing expenditures on 5G infrastructure deployment, which is fueled by a shift in customer preference towards next-generation technologies and smartphone devices. Additionally, the rising number of mobile subscribers, the soaring demand for high-speed data connectivity, and the growing need for value-added managed services are key factors that contribute to this market growth.
Initially a trend in 2019, 5G has solidified its position as a critical driver of the industrial economy. The Future of Commerce reported that the global 5G connections are projected to surge from 1.76 billion in 2023 to 7.9 billion by 2028. This indicates that 5G will constitute over half of all connections, as per reports from 5G Americas and Omdia. This expansion is driven by investments from government and telecom companies, as well as the demand for faster internet speeds, lower latency, and improved battery life. While 5G deployment continues, 6G is emerging and promises ultra-high data speeds via terahertz spectrum bands, low latency, and AI integration. It aims to revolutionize communication through applications like smart grids and immersive XR experiences. However, challenges like energy efficiency and responsible AI integration remain. Telecom companies stand to capture a $100 billion opportunity within the 5G economy.
AI is deeply ingrained in the telecom sector as well. It evolved from basic echo cancellation in the 1950s to sophisticated algorithms for network management and failure prediction. In 2025, AI’s role will intensify, with global telco investments projected to rise from $3.34 billion in 2024 to $58.7 billion by 2032. AI is crucial in network topology improvements. It facilitates self-healing networks, automated transitions, and AR applications. It will drive 6G’s evolution towards connected intelligence and enhance predictive maintenance, fault detection, security, and customer experiences through predictive and cognitive AI.
Our Methodology
We used the Finviz stock screener to compile an initial list of top telecom stocks. We then selected the 13 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 Q4 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 373.4% since May 2014, beating its benchmark by 218 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: 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.”
Overall, CCOI ranks 10th on our list of the best telecom stocks to buy according to hedge funds. While we acknowledge the growth potential of CCOI, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. 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.