Cogent Communications (CCOI) BofA SMID Cap Conference summary

Market environment and small/mid-cap outlook

• Market volatility is elevated, with historical patterns suggesting more corrections are likely in the near term, especially in election years.

• Volatility creates opportunities, particularly for small caps, which are sensitive to interest rates and refinancing risks.

• Focus is shifting from mega-cap tech to broader market fundamentals, with small and mid-cap TMT stocks potentially benefiting from investor rotation.

• Dividend stocks in the small-cap space are gaining attention as a hedge, with the S&P 600 now yielding more than the S&P 500.

• The environment is expected to favor stock pickers, with significant alpha opportunities in small and mid-cap stocks.

Industry trends and competitive landscape

• Three major industry trends: fiber deployment replacing older transmission, migration to over-the-top IP networks, and proliferation of fiber to endpoints.

• AI is driving demand for new fiber builds, but profitability remains uncertain due to concentrated buyer power among hyperscalers.

• New fiber deals often involve building to proprietary data centers, with limited revenue opportunities beyond the initial customer.

• Advances in wave division multiplexing reduce the need for large fiber counts, supporting scalable AI applications.

• The market for dark fiber is not new; it has existed for decades, with many sellers and buyers, and is often less attractive due to long-term obligations and counterparty risk.

Company positioning and strategy

• Focus remains on connecting major carrier-neutral data centers globally, carrying about 25% of global internet traffic.

• Recently acquired a 19,000-mile intercity fiber network, repurposed for optical transport services with defined latency, endpoints, and security.

• Optical transport services are more expensive but offer unique value; the company is targeting flexible, scalable wavelength services rather than long-term dark fiber deals.

• No plans to pursue speculative AI fiber builds; emphasis is on proven, scalable network solutions.