Telecom ETFs in Focus This Earnings Season

The telecom sector has demonstrated robust performance, with the S&P Telecom Select Industry Index advancing 50.85% over the past year, significantly outperforming the S&P 500, driven by optimistic AI growth forecasts and anticipated 2025 Fed rate cuts. In Q3 2025, Verizon Communications reported adjusted earnings that beat estimates despite a revenue miss, fueled by 2.1% wireless service revenue growth and strong fixed wireless additions. AT&T, however, missed both adjusted earnings and revenue estimates, though it saw healthy subscriber momentum and a substantial GAAP net income increase primarily due to the DIRECTV sale, with both companies projecting continued wireless service revenue growth for 2025.

Analysis

The telecom sector has demonstrated robust performance, with the S&P Telecom Select Industry Index advancing 50.85% over the past year, significantly outperforming the S&P 500's 17.35% gain. This strong momentum, also evident in a 9.52% month-to-date outperformance, is underpinned by optimistic AI growth forecasts and anticipated Fed rate cuts in 2025. The sector's positive outlook suggests continued investor confidence.

Verizon Communications (VZ) reported solid Q3 2025 results, with adjusted earnings of $1.21 per share beating the Zacks Consensus Estimate by 2 cents, driven by lower operating expenses and 2.1% year-over-year wireless service revenue growth to $21 billion. Despite total operating revenues of $33.82 billion missing consensus, VZ achieved 261,000 fixed wireless access net additions, progressing towards its 2028 target of 8-9 million subscribers. The company forecasts 2-2.8% wireless service revenue growth for 2025.

Conversely, AT&T (T) delivered modest Q3 2025 results, missing both adjusted earnings and revenue estimates, with adjusted earnings flat at 54 cents per share. While GAAP net income significantly improved to $9.28 billion due to a $5.5 billion gain from the DIRECTV sale, total GAAP operating revenues increased only 1.6% to $30.71 billion, missing consensus. AT&T did show healthy subscriber momentum with 328,000 post-paid net additions and projects wireless service revenue growth of 3% or more for 2025.

Key Decisions for Investors

• Consider exposure to the telecom sector through ETFs like IYZ, given its strong outperformance and positive macro tailwinds from AI and potential rate cuts.
• Evaluate Verizon (VZ) for its consistent adjusted earnings beat, strong broadband subscriber growth, and positive 2025 wireless service revenue guidance, despite a revenue miss and Zacks Sell rating.
• Exercise caution with AT&T (T) due to its Q3 earnings and revenue misses, noting that significant GAAP net income improvement was largely non-recurring from asset sales, while monitoring its efficiency initiatives and 2025 growth targets.