Categories: Tech News

T-Mobile Surprises as Tech Winner in Tough Stock Market

With everything from high-flying software companies to giants like Alphabet Inc. losses this year, investors looking to cash in on technology-related stocks have found a surprising winner: T-Mobile US Inc.

The mobile operator is up 26% and is flirting with an all-time high. It is the only top-performing technology, media or telecommunications stock on the Nasdaq 100, other than Activision Blizzard Inc., the video game company being acquired.

Fast-growing technology companies with high valuations have been hit by higher interest rates, while a slowing economy has weighed on Internet companies that rely on advertising. But T-Mobile has been beating estimates for new subscribers this year, helped by its discounted cell phone plans.

“As we saw during the pandemic, cellular connectivity is essential in modern society and is one of the last things consumers need to cut back on,” said Keith Snyder, senior equity analyst at CFRA Research. “They may drop to lower-priced plans and delay buying new devices, but they won’t cancel service.” He has a strong buy rating on the stock.

T-Mobile has overtaken its rivals AT&T Inc. and Verizon Communications Inc. aggressively pricing phone plans at lower rates, attracting customers whose wallets are being squeezed by rising inflation. AT&T is down 1.6% this year, while Verizon is down 13%.

It also made progress in building out its 5G network since its acquisition of Sprint Corp. in 2020, at a time when its rivals were busy shedding their media businesses to refocus on the telecom business.

T-Mobile “is benefiting from the Sprint merger, both revenue-wise and cost-wise,” said Raymond James analyst Ric Prentiss, who has a strong buy recommendation on the stock. “T-Mobile has gained a 5G network advantage and is no longer just a value leader, but can also compete and win on network quality.”

By the way, the stock is not cheap. Trading at 30 times forward earnings, it beats AT&T at 7.3 times and Verizon at 8.6 times. Rivals also pay dividends, unlike T-Mobile. This has left investors looking for a steady stream of dividends out of the fray.

While T-Mobile has seen “tremendous” business growth this year, it’s still “extremely expensive,” said David Bahnsen, chief investment officer at the Bahnsen Group, a $3.7 billion asset manager which owns a stake in Verizon. Bahnsen said stocks are “more of a speculative play than a stable value play.”

The Nasdaq 100 posted its fourth consecutive week of gains, its longest streak since November of last year. The technology index has added about $3 trillion in market value since its June low. Tech stocks have rallied in recent weeks after a string of tough quarter-end reports. They were further bolstered by softer-than-expected inflation data last week. The index traded slightly higher on Monday.

Subrat Patnaik reports for Bloomberg News.

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