Citi sees tower stocks benefiting from potential Starlink network build

Investing.com - Citi released its latest ranked recommendation list for communications services and infrastructure stocks following the second-quarter earnings season. The firm resumed coverage on Echo Global (ECHO) with a Buy/High Risk rating, initiated coverage on TeraWulf (NASDAQ: WULF) with a Buy/High Risk rating, and initiated coverage on Black Stone Minerals (BXDC) at Neutral.

Citi views a network build scenario by SpaceX as a potential net risk to telecom operators AT&T (NYSE: T), Verizon (NYSE: VZ), and T-Mobile (NASDAQ: TMUS). The firm said telecom stocks are trading based on the risk that wireless competition expands to between 3.5 and 4.5 average players per market from the current structure of approximately 3.5 players. Citi said it would not dismiss the possibility of SpaceX buying and merging with a telecom provider, while MVNO agreements with the big three carriers seem unlikely.

The firm remains positive on large-cap tower stocks American Tower (NYSE: AMT), Crown Castle (NYSE: CCI), and SBA Communications (NASDAQ: SBAC) after their recent pullback. Citi sees stabilizing organic leasing activity and constructive long-term trends from growing data consumption, upcoming spectrum auctions, and 5G densification. The firm said if Starlink or another low Earth orbit constellation evolves into a full-service mobile provider by building a network, it would likely be a net positive for tower stocks.

For data centers, Citi said overall demand indicators remain positive for both hyperscale and retail, while hyperscale supply in a number of markets remains restrained. The firm said enterprises still appear to be in an early stage of AI adoption. Potentially positive catalysts for faster normalized revenue growth include acceleration of interconnection demand from expanding AI demand, rising workload power densities, and ongoing strength in core bookings and pricing trends.

Citi maintains its Buy rating on Equinix (NASDAQ: EQIX), Digital Realty (NYSE: DLR), and TeraWulf, and maintains its Neutral rating on Black Stone Minerals. On the supply side, power remains a restraining factor for data centers, while community opposition to new developments is further challenging supply growth in the industry.

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