We recently compiled a list of the 10 Worst Communication Services Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where Fox Corporation (NASDAQ:FOXA) stands against the other communication services stocks.
Artificial intelligence (AI) and automation are 2 of the most transformative and consequential technologies that are expected to impact telecommunications since the advent of 5G. Integration of AI into networks and operations should help in optimizing performance, automating tasks, and improving customer service. Well-established telecom companies continue to leverage AI-powered predictive analytics to track and project maintenance works so that network reliability and efficiency are maintained.
As a result of the expansion of the 5th-generation mobile network (5G), a range of telecommunication providers continue to deliver faster data speeds and greater network capacity. Wi-Fi technology pioneer Qualcomm expects that 5G should be responsible for supporting more than $13 trillion in global economic output by 2035.
As per Infopulse, in 2021, the global telecom IoT market size was pegged at $19 billion. By 2031, this should exceed the $185.5 billion mark, exhibiting a CAGR of 27.71%. One critical use case, which explains why IoT is getting traction in the sector, incorporates equipment monitoring and hazard detection.
In 2024, political ad spending is expected to be in the range of $10.2 billion and $12 billion (as per Basis Technologies). These numbers exhibit a rise of 13%-30% from the 2019-2020 election cycle. For advertising and media agencies, this can result in higher CPMs—primarily during certain periods, certain locations, and on certain channels.
Expansion of 5G Technology and Plans for 6G
5G will be more scalable and capable of handling bigger data loads, therefore, it is associated with the Internet of Things (IoT). 5G can also support advanced technologies like augmented reality (AR) and virtual reality (VR). The Wi-Fi technology pioneer believes that the development requirements of the new 5G network should expand beyond the traditional mobile networking players to segments like the automotive industry. Experts believe that the 5G value chain (which includes OEMs, operators, content creators, and the like) might support up to 22.8 million jobs, or over one job for every person in Beijing, China.
The stage is being set for the 6th generation (6G). This technology is expected to incorporate AI at the edge and in networks fully, allow reliable operation of autonomous vehicles, and automation in industrial manufacturing, and should power “smart factories.” 6G should take extended reality (XR) to brand new levels and will allow lightweight devices which can be deployed at a similar scale as today’s smartphones. Emerging capabilities such as digitization of multisensory aspects (like human senses of touch, smell, sight, and taste), improved sensor fusion and brain-computer interface should help deliver hyper-realistic experiences (such as holographic teleportation).
While 5G established a technical foundation for high-performance industrial IoT, 6G is expected to unleash the full potential of next-gen robotics, such as delivery robots, service robots, and autonomous and collaborative robots.
Communication service providers (CSPs) should start realizing the value of highly-touted 5G use cases like vehicle-to-vehicle communication, and virtual reality-based immersive metaverse networking. One of the most promising cases for CSPs is Wi-Fi upgrade—from broadband to fixed wireless access and private 5G. The use cases of 5G and operational automation will rely on CSPs’ ability to create cloud-native network platforms with end-to-end programmability.
GenAI Revolution
The global unified communications market was pegged at US$63.82 billion in 2023 and should compound at 12.70% between 2024 – 2032 (as per Polaris Market Research). This growth should stem from strong growth because of the increased usage of mobile devices and the adoption of Bring Your Device (BYOD) policies. Enhancing enterprise communication for improved productivity and cloud-based unified communication should also act as growth enablers.
Generative AI is expected to drive a seismic shift in the communication services transformation agenda. Efficiency, cost-effectiveness, improved IT services, data-driven intelligence, and network connectivity should act as the backbone of GenAI-propelled customer experience.
The communications and media companies’ top AI objectives in 2024 should optimize network performance and reduce downtime. Collectively, these are expected to improve the quality of service. These companies are planning to deploy AI for real-time detection of and response to network issues. This will help in the rollout of high-bandwidth, low-latency applications, and services. Artificial intelligence helps in driving predictive analytics which facilitates detecting and resolving network issues before the service disruption.
With more and more computing workloads being distributed throughout remote data centers, latency is expected to drop, bandwidth should increase, and organizations are expected to gain more sovereignty over their data. Edge computing enables real-time data processing, which should unlock use cases across industries— ranging from remote healthcare treatment and remote management of mining operations to sustainability solutions including smart grids optimizing energy consumption.
Our methodology
To list the 10 Worst Communication Services Stocks to Buy According to Short Sellers, we used the Finviz screener to filter out stocks catering to the broader communications sector. Next, we narrowed our list of stocks by selecting the ones having high short interest. Finally, the stocks were ranked in ascending order of their short interest.
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).
Fox Corporation (NASDAQ:FOXA)
Short % of Float (15 August 2024): 15.39%
Number of Hedge Fund Holders: 37
Fox Corporation (NASDAQ:FOXA) operates as an entertainment company. It produces and licenses news, sports, and entertainment content for distribution via cable television systems, direct broadcast satellite operators, and telecommunications companies.
Over the past 6 months, the shares of Fox Corporation (NASDAQ:FOXA) have seen a run-up of more than ~30%. Short sellers believe that the political ad spending enthusiasm had already been reflected in the company’s stock. Moreover, short sellers believe that the company’s dependence on the traditional pay-TV bundle for nearly all its top line can create a problem over the long term. Therefore, there is some uncertainty regarding its long-term strategy, with the media ecosystem increasingly transitioning to digital.
Next, short sellers believe that there are some concerns related to valuations too. The stock of Fox Corporation (NASDAQ:FOXA) currently trades at ~10.9x its forward earnings, which seems to be stretched, considering that the sectoral average hovers at ~8.8x.
However, Wall Street analysts remain optimistic about Fox Corporation (NASDAQ:FOXA). They believe that its brand strength, primarily in news and sports broadcasting, should act as a formidable asset. Its portfolio, such as Fox News and the FOX broadcast network, can command significant audience loyalty and interest among advertisers. Its owned and operated local television stations should continue to strengthen its market presence, offering direct connections to advertisers.
Next, Fox Corporation (NASDAQ:FOXA)’s content strategy, focusing on live sports and news, sets it apart from its competitors which are more focused on scripted content. Its rights to broadcast major sports events, such as NFL games and college sports via Big Ten Network, should provide it with a competitive edge. Moreover, the company continues to expand via inorganic growth opportunities. Its recent acquisition of Credible Labs, which is a consumer fintech firm, hints at the company’s willingness to diversify and innovate beyond the core media business.
Analysts at Wells Fargo & Company raised the shares of Fox Corporation (NASDAQ:FOXA) from an “Underweight” rating to an “Overweight” rating. They upped their price objective from $29.00 to $46.00 on 16th August 2024. The stock is held by 37 hedge funds (out of 912 hedge funds tracked by Insider Monkey) with stakes worth $653.7 million as of the second quarter. In the preceding quarter, 31 hedge funds held stakes in the company.
Overall FOXA ranks 5th on our list of the worst communication stocks to buy according to short sellers. While we acknowledge the potential of FOXA as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than FOXA 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 was originally published at Insider Monkey.