iShares US Telecommunications ETF

IYZ

Market cap $645M

Over the last 100 trading days, or roughly five months, the S&P 500 Index (SPX) has surged more than 25%.

IYZ underperforms both its peer XTL and the S&P 500, with disappointing returns and unattractive projected industry growth. The U.S. telecom sector faces slow growth (3-3.7% CAGR), increasing headwinds from big tech, and limited upside from AI and 5G trends. Given industry perspectives, valuation concerns, and better alternatives, I do not recommend IYZ; targeted exposure to select companies is preferable.

Wednesday, July 23 came and went with another spate of earnings to report. While the still-hot theme of artificial intelligence (AI) living through big tech earnings may grab headlines, the communications sector specifically may also speak to investors.

Look at telecom ETFs as companies report fourth-quarter 2024 earnings.

Look at how Telecom ETFs are performing after Q3 earnings.

iShares U.S. Telecommunications ETF holds a concentrated portfolio in the telecom and tech sectors, with 43% of assets in Cisco, Verizon, and Comcast. Despite strong profitability margins, IYZ struggles with poor revenue growth and lagging performance compared to peers, making it a hold for now. The telecom industry's future growth hinges on 5G infrastructure, but current performance issues make IYZ less attractive for immediate investment.

Cisco (CSCO) beat estimates on both earnings and revenues but provided a weak outlook and revealed plans to lay off 5% of its global workforce, pushing its share price down.

Look into how telecomm ETFs reacted to Q4 earnings.

Telecommunications have become the backbone of our society. iShares U.S. Telecommunications ETF has been a relative underperformer against the S&P 500 for years now, but the price ratio looks like it's bottoming. On the downside, the telecom sector is highly regulated and capital-intensive, which can impact the profitability of companies in this space.

On Jan 9, 2024, Hewlett Packard Enterprise (HPE) has announced its intention to acquire networking gear vendor Juniper Networks in an all-cash deal valued at approximately $14 billion.