Telecom stocks rise 28% as operators begin scaling AI

After 20 years behind tech, 61% of telcos now use AI to cut costs 10% and boost revenue.

Telecom companies are looking beyond traditional services to grow, with a recent McKinsey & Company report showing that whilst telecom profits have lagged for years, new strategies could change that.

The report noted that telecoms’ total shareholder returns rose 29% over the past 20 years, compared with 235% for all sectors but returns have picked up recently, rising 28% since the start of 2024.

Operators are using AI to cut costs, automate networks, and improve customer service with AI handling tasks automatically and predicting customer needs, saving money.

McKinsey also found that 61% of telco executives are scaling AI across their operations, 47% have already seen results, and 64% expect AI to contribute more than 5% of revenue soon, with 40% expecting cost cuts above 10% once fully implemented.

Telcos are also expanding into private networks for businesses, IoT platforms, and digital finance services.

Partnerships and APIs help them offer more services and generate extra revenue whilst upgraded networks and edge computing also operators an advantage, allowing them to host AI applications for businesses and governments whilst improving efficiency.

Companies are also using mergers, new operating models, and working with regulators to adapt quickly and grow value.

McKinsey noted that only about one in five large telcos globally achieved above-average growth in both revenue and profits over the past five years, with those companies seeing around 11% annual enterprise value growth.

The report also noted that Asia has strong potential thanks to high mobile use, dense populations, and growing digital ecosystems.

McKinsey says simply cutting costs isn’t enough with telecoms that combine AI, new services, and modern networks most likely to grow in the future.