Verizon and AT&T Make Big Statements for This Holding

As part of our homework on the smartphone market and the expected upgrade cycle that many have touted for Apple’s AAPL new AI-infused iPhone models, we’re looking to see what Verizon VZ and AT&T T had to say about smartphone upgrade activity during their September quarters.

Both shared sobering comments that they have yet to see the expected iPhone super upgrade cycle, and that is weighing AAPL shares today. AT&T’s view matches ours for a more protracted upgrade cycle as Apple releases more Apple Intelligence features in upcoming software updates. That keeps us interested in continuing to own AAPL shares in the Portfolio.

Verizon

When discussing working capital on the company's September earning call, Verizon EVP and CFO Tony Skiadas kicked things off by sharing “… we’re not seeing a big upgrade cycle right now.”

That comment was followed by the following from Chairman and CEO Hans Vestberg: “It's too early for us to say at least, we're so far, and I'm looking at my colleagues, we haven't seen that. We haven't seen that is creating the cycle. But it's too early to say if it's going to happen…”

Vestberg also shared that he sees the nearer-term AI opportunity more for Verizon’s enterprise business than its consumer one. Heading into quarterly results from ServiceNow NOW after Wednesday's market close, we find that comment constructive.

AT&T

Our reaction to Vestberg’s comments is that we are still relatively early in the AI upgrade cycle, especially with Apple yet to formally introduce iOS 18.1 and the first set of Apple Intelligence features. We’ve shared our view the iPhone upgrade cycle this time around is likely to be an extended one as Apple adds additional Apple Intelligence features with future software upgrades.

That thinking was supported by comments from AT&T’s CEO John Stankey, who shared on today’s AT&T earnings call that AT&T company experienced lower year-over-year upgrade rates in the September quarter. Stankey’s next comment was aligned with our thinking:

“We're still waiting, obviously, for the software release and whether or not that software release drives interest in the consumer base to accelerate that remains to be seen, I don't know. I've given you my point of view that says, I think some of these things are going to be a little bit more graceful ramp-up in consumer interest as opposed to a big bang. Software oftentimes tends to be that.”

Stankey also shared that AT&T is expecting seasonally higher phone purchasing activity, upgrades, and promotional cycles in the current quarter.

Our Thoughts

When Apple revealed its new iPhone models, we called out the favorable trade-in values for older models, which persist several weeks later and are likely to remain in place through the holiday shopping season if not longer. As Apple releases additional Apple Intelligence features in subsequent software releases, the probability of those new features combined with attractive trade-in device dollars leading to a protracted upgrade cycle is high in our view. The onus remains on Apple to ensure those added Apple Intelligence features are compelling for consumers, and that the message is clearly communicated.

Capital Spending Comments

Comments from Verizon and its expected capital spending plans for 2025 were constructive for the enterprise networking and carrier infrastructure businesses at TheStreet Pro Portfolio holding Marvell MRVL. During the earnings call, Verizon shared its 2024 capital spending is tracking for $17.0 to $17.5 and tentative spending for next year is in the $17.5 billion to $18.5 billion range.

That’s a step in the right direction but should the AI smartphone upgrade cycle accelerate in the coming quarters, we’ll be looking to see if Verizon signals even higher spending next year or in 2026.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long AAPL, NOW and MRVL.