AT&T Inc. (NYSE:T) appears to have given telecom bears reason to pause after its second-quarter report. Although top-line consolidated revenue of $31.6 billion came in slightly lower than expected, operational efficiency and underlying cash generation were prominent metrics to note. The company reported adjusted earnings per share of $0.65, exceeding expectations of $0.59, thanks to strong subscriber growth and increased operating leverage across its fiber and 5G networks.
Free Cash Flow Silences Bears
This operational performance directly addresses the primary bearish thesis that has plagued legacy telecom for several quarters: the fear that massive 5G and fiber buildouts will deplete cash flow and jeopardize shareholder returns. AT&T’s second-quarter results squarely contradict that storyline. During the quarter, free cash flow totaled $4.7 billion, a 6.3% rise from the previous year and comfortably exceeding management’s internal guidance range of $4.0 billion to $4.5 billion.
Beyond cash flow, evaluating telecom-focused operational measures rather than baseline EPS reveals even more about AT&T’s underlying quality of earnings. The company’s adjusted EBITDA climbed by 5.2% year-over-year to $12.3 billion, crossing revenue growth and showcasing solid development. This operational momentum boosted the company’s adjusted EBITDA margin by 110 basis points, to 39.1%.
The subscriber mix was the most essential detail. AT&T Inc. (NYSE:T) added 432,000 postpaid phone users in the quarter, greatly exceeding the 338,500 analysts expected, and it acquired more than 1 million advanced connectivity subscribers overall, aided by fiber and fixed wireless growth.
Valuation Disconnect: Forward EV/EBITDA Signals Mispricing
Despite this strong operational execution, AT&T’s stock remains detached from its fundamental performance. The stock currently trades at around 6.7x projected EV/EBITDA, which represents a significant discount to Verizon at 7.3x and T-Mobile at 8.8x. Moreover, this metric ranks below AT&T’s own five-year historical average of 7.5x to 8x, indicating a tempting valuation gap for a company that strongly competes with its peer group in fiber growth footprint and customer integration.
De-risking Competition
This compelling valuation was further supported by the fact that emerging competition concerns have been significantly overblown. Headlines about SpaceX exploring land-based cellular networks via Starlink have piqued the market’s interest, although satellite-to-cell technologies serve mostly as a complementary patch for remote regions rather than a direct threat to high-density terrestrial infrastructure.
Institutional positioning and corporate actions encourage this defensive position. While Insider Monkey’s analysis shows that 72 hedge funds owned positions in AT&T Inc. (NYSE:T) at the end of the first quarter, down from 77 the previous period, short interest remained low at 1.81% of the float. Management has also expressed strong confidence in its balance sheet by increasing the share repurchase authorization to $10 billion.
Insider Monkey’s View
Ultimately, AT&T Inc. (NYSE:T) is no longer a debt-ridden legacy utility, but rather a streamlined connectivity provider with strong, high-margin cash flows. A multiple re-rating from its current 6.7x EV/EBITDA ratio to its historical average of 7.5x to 8x could unlock significant stock value. When combined with a steady 4.8% dividend yield and an aggressive $10 billion buyback program, the company offers a clear double-digit total return outlook.
While we acknowledge the risk and potential of T as an investment, our conviction lies in the belief that some other AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is much cheaper than T and that has 10,000% upside potential, check out our report about the cheapest AI stock.
READ NEXT: 33 Stocks That Should Double in 3 Years and Cathie Wood 2026 Portfolio: 10 Best Stocks to Buy.
Disclosure: None.
Hedge Fund Resource Center