Why Telecom Stocks Like AT&T and T-Mobile US Tumbled Today

One group of stocks that has been punished during this current market downturn is telecoms. On Tuesday, they got little respite, on news of remarks from a top executive at one of their incumbent companies.

Many telecoms sank into the gloom that trading session, including big dogs AT&T (NYSE: T) and T-Mobile US (NASDAQ: TMUS); the pair closed the day down nearly 5% and 4% in price, respectively. Even associated businesses felt the pain, with networking specialist Ciena (NYSE: CIEN) losing more than 2% of its value despite publishing an estimates-beating quarterly earnings report.

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In search of growth

In an industry conference that likely wasn't as festive as some might have hoped, Verizon chief revenue officer Frank Boulben made some remarks that led investors to pull back from sector stocks.

Boulben described the current first quarter as being packed with an "elevated level of competitive intensity." That sort of environment isn't all that conducive for growth, and accordingly, Boulben is expecting postpaid contract gross additions at his company to be flat or even slightly negative for the quarter.

What also doesn't help Verizon or peer telecoms is increased device retention. He said that on average, consumers are keeping their phone models for more than 41 months before upgrading. That number was well lower in the recent past, at 24 months.

Since Verizon, along with AT&T, is something of a pacesetter, what it's seeing on the landscape directly affects sentiment on the broader telecom industry. After all, if the company is struggling, it's likely the smaller guys are either facing headwinds already, or will soon.

The market's draining optimism was reflected in the investor reaction to Ciena's otherwise encouraging fiscal first quarter of 2025 earnings release, published before market hours.

For the period, the networking company booked $1.07 billion in revenue, which was 3% higher on a year-over-year basis. Non-GAAP (generally accepted accounting principles) adjusted net income was down but not by much, at $94 million ($0.64 per share) against the first quarter of fiscal 2024's nearly $97 million profit.

Both headline figures, particularly the bottom-line result, topped the consensus analyst estimates of $1.05 billion on the top line and $0.42 per share for adjusted net income.

The tariff question

Boulben's remarks come at a time when investors are a bit jittery about the possible effect of tariffs on telecom stocks. These levies haven't been as aggressive or wide-ranging as many suspected, but they could potentially affect some of the raw materials that are used for telecom equipment. This sector isn't out of the woods yet, and investors should remain cautious about it.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.