It’s a confusing moment in time for the world of telecommunications. After spending much of the 21st century experiencing rapid growth, many telecom-focused markets are facing sustained periods of saturation.
In the United States, smartphone shipments declined in the first quarter for the sixth consecutive quarter. Similar levels of saturation impacted global broadband subscriber growth, which reached its slowest rate has been slowing since 2019.
Until the technology is replaced by something more advanced, there will always be room for these markets. Still, investors should be braced for a more unpredictable future as consumer trends fall out of love with telecommunications markets.
We’re likely to see a major boost for the telecom industry over the coming months. The continued emergence of generative AI will see the technology work alongside the rollout of 5G to offer far greater capabilities for new smartphones.
While this will help drive more consumer interest in smartphone markets lacking innovation, its impact on stocks could be uneven.
The rise of generative AI in the telecom industry will see new winners and losers emerge, and some stocks could be left behind. With this in mind, these three stocks could face a difficult fourth quarter 2024:
Verizon Communications (VZ)
Like many telecommunications giants, Verizon Communications (NYSE:VZ) has struggled for momentum in recent years.
The stock enjoyed some steady growth of a little more than 6% over the first half of 2024, but Verizon undid much of its progress in a matter of days after missing its Q2 earnings estimates.
Verizon reported quarterly revenue of $32.8 billion, falling below average analyst expectations for $33.06 billion. The miss was caused by a historically low volume of consumers upgrading their smartphones.
Despite its shortcomings, the telecom provider saw wireless service revenue and broadband growth, but its performance throughout the rest of the year will hinge on the wider smartphone market recovery.
Verizon may have some hope of plotting better revenue growth. The hotly anticipated launch of Apple’s (NASDAQ:AAPL) iPhone 16 may represent a watershed moment for telecommunications, with the device set to become Apple’s first smartphone featuring generative AI.
However, backing Verizon to recover from a smartphone market upturn based on the launch of the new iPhone represents a gamble, making it a big risk for investors holding the stock moving into October.
Vodafone Group (VOD)
Looking at the stock’s long-term performance, investors could be forgiven for believing that Vodafone Group’s (NASDAQ:VOD) best days are long gone.
The British firm’s all-time high value came more than 24 years ago in March 2000, and the stock now sits 88% below its historical peak.
Once the biggest stock in the U.K., Vodafone’s CEO Margherita Della Valle has spent much of 2024 attempting to curb the telecom firm’s decline by selling off Vodafone’s Italian business, halving dividends, and setting up a share buyback scheme.
In recent weeks, Vodafone has sold a further 10% stake in its former subsidiary and European mobile phone mast firm, Vantage Towers, for $1.4 billion.
While this aggressive restructuring plan could ultimately pave the way for a more sustainable business model for Vodafone, investors should expect far greater price volatility throughout the rest of 2024.
Later down the line, Vodafone may offer potential as a long-term hold for investors, but today, it’s more likely to be worth looking into short positions for the stock.
AT&T (T)
Following an estimate-beating second-quarter earnings call for AT&T (NYSE:T), it’s clear that the telecom giant has a sustainable plan to continue securing subscriber additions for its range of higher-priced plans.
However, the telecommunications provider is facing several challenges moving into the rest of the year
AT&T’s mobility equipment revenue fell 8% in the second quarter, missing estimates, as slower smartphone upgrades affected the company.
Perhaps most worryingly, AT&T also recently suffered a significant data breach in which almost all customer call and text records became exposed to hackers.
In a year that also saw persistent service blackouts block over 92 million voice calls and over 25,000 attempts to call emergency services, AT&T’s shortcomings could ultimately lead to a fine for failing to provide users with access to 911.
For the rest of 2024, AT&T will face a battle to repair its reputational damage. As a stock that has plenty of potential, we may see the telecom giant offer greater value to investors later down the line, but moving into the fourth quarter, AT&T may be a stock that’s too risky to pick up.
On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in AAPL.