The arrival of artificial intelligence (AI) has led to many firms claiming AI capabilities. Although not all of those are worthy AI investments, telecom giant Verizon Communications(NYSE: VZ) could also be an missed sleeper AI stock.
AI darling Nvidia, for instance, saw shares rise greater than 130% over the past 12 months. Meanwhile, as recently as Jan. 10, Verizon shares hit a 52-week low of $37.59, they usually remain near this low.
But how is Verizon contributing to the AI market’s expansion? Is it a buy with its share price down? Let’s dig into the corporate to deal with these questions.
Verizon contributes to the expansion of the AI sector through its 5G wireless network. Its 5G service supports the fast speeds and security required to deliver AI to devices on the sting of a pc network, equivalent to laptops and mobile phones.
An example of Verizon’s role within the AI edge computing space is its partnership with Nvidia to deliver AI to non-public networks, that are wireless services dedicated to specific organizations. As an example, Verizon will provide a personal network to FIFA for the boys’s 2026 World Cup.
In line with CEO Hans Vestberg, “As we expand our 5G Ultra Wideband network and scale our private networks business, we’re opening up latest opportunities for growth and innovation.”
Bringing AI to the sting positions Verizon to just do that. That is since the AI edge computing sector is forecast to expand tenfold from $27 billion in 2024 to $270 billion by 2032. Delivering AI to the sting is vital to facilitating the expansion of self-driving cars, robotics, and the Web of Things.
The corporate is currently growing revenue from its wireless services. In Q3, this a part of Verizon’s business produced $19.8 billion in sales, a 3% year-over-year increase.
The expansion of the AI edge computing industry is a promising tailwind for Verizon’s sales. Nonetheless, other aspects weigh on the corporate and, hence, its stock price.
While wireless service sales are growing, overall revenue will not be. In Q3, total revenue of $33.3 billion was flat in comparison with 2023. The corporate’s revenue growth stalled as equipment sales fell yr over yr amid a macroeconomic environment of lower consumer discretionary spending.
One other factor is Verizon’s large debt burden. The telecom exited Q3 with over $150 billion in debt on its balance sheet. This debt could increase as the corporate prepares to amass Frontier Communications Parent, a broadband web service provider, in the approaching months.
That said, the Frontier acquisition sets Verizon as much as strengthen its rapidly growing broadband business, which also contributes to delivering AI to the sting. At the top of Q3, Verizon had total broadband connections of 12 million, representing 16% year-over-year growth. Acquiring Frontier will nearly double this by adding an estimated 10 million homes by 2026.
Although Verizon shoulders a big debt burden, the corporate advantages from the power to generate strong free money flow (FCF). FCF provides insight into the money available to take a position within the business, pay debt obligations, and fund dividends. The corporate’s Q3 FCF was $6 billion, bringing the year-to-date total to $14.5 billion.
This easily covered Verizon’s $8.4 billion in dividend payments made through the primary nine months of 2024, leaving money to pay down debt and support business growth. Dividends are a key reason to contemplate an investment in Verizon. The firm’s dividend yield is a staggering 7%. Also, Verizon raised its dividend for the 18th straight yr in September. This long streak of increases, plus the telecom’s excellent FCF, means it is a reliable source of passive income.
On top of that, Verizon reaching a 52-week low recently led to a forward price-to-earnings (P/E) ratio of eight. This metric helps to evaluate stock valuation by telling you the way much investors are willing to pay for a dollar’s price of earnings based on estimates for the subsequent 12 months.
Verizon’s forward P/E multiple is lower than that of its primary rivals, AT&T and T-Mobile US. This means its stock is a greater value than its competitors. Its low forward earnings multiple, coupled with a strong dividend, strong FCF, and a growing wireless service business, mix to make Verizon stock a buy.
Hold onto shares as a long-term investment to profit from its dividend while the telecom titan tackles the growing AI edge computing market.
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Robert Izquierdo has positions in AT&T, Nvidia, T-Mobile US, and Verizon Communications. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot recommends T-Mobile US and Verizon Communications. The Motley Idiot has a disclosure policy.