August greetings from Boston, Kansas City, Cedar Rapids, and the Lake of the Ozarks (pictured is Saturday’s grey, rainy and unseasonably cold day – a welcome pause from high heat and humidity). This has been an amazing two weeks of developments for both the Telco Top Five and the Fab Five. We have enough material to analyze through the end of the year but will instead cover through the next four Briefs starting with Verizon.
The Fortnight That Was
The Fab Five added over one trillion dollars of market capitalization this week. Year-to-date 2026, they have added just over $1.1 trillion. While the stock had a down day on Friday, Apple is still up 14% for the year and is the most valuable Fab Five stock (now worth $4.5 trillion). They join Alphabet (+14% YTD) and Amazon (+18%) as market cap percentage gain leaders. In what appears to be a second half comeback, Microsoft added $617 billion in market capitalization over the last five trading sessions as they reiterated their free cash flow discipline.
Meta, the smallest of the Fab Five ($1.4 trillion market cap), even with a bad two weeks (-$228 billion), is still 2.2x more valuable than the entire Telco Top Five. Verizon’s billion-dollar fiber sale to Google (which we analyze and applaud below) comprises a mere one half of one percent of their 2026 capital spending.
And the Fab Five are just getting started. Here are the latest quarter-over-quarter and year-over-year net debt comparisons for the Fab Five (note: underlying data will be distributed in next week’s interim Brief spreadsheet attachment):
To no one’s surprise, Amazon and Meta are now net debt neutral, meaning they have about as much cash and near-cash on hand as they have debt. In any world other than Silicon Valley, this would be considered exceptional and conservative balance sheet management. With $64 billion in cash flow from operations over the last six months, Meta has plenty of ability for $84 billion (or $184 billion) in debt.
What is notable, however, is the volume of debt placements for these companies over the last twelve months (+$185 billion). Lenders are opening their wallets to fund broadband infrastructure expansion and software development. We believe that lending will increase for the next 24-36 months – what happens after that point depends on the slope of the adoption curve. Companies like Alphabet can continue to raise additional equity (details of their June 2026 $84.75 billion equity offering is here), but that likely comes with higher cost of capital expectations.
It’s also interesting to note the $116 billion increase in cash and marketable securities across the group from 2Q 2025 to 2Q 2026. Alphabet (+$147 billion), Amazon (+$30 billion) and Meta (+$47 billion) all saw meaningful increases. This provides a glimpse of what’s ahead for the next quarter, provided the supplier community can keep up (for some interesting reads there, we refer Brief readers to Eaton, Generac, Enersys and Vertiv earnings announcements and investor presentations.
Bottom line: In 2Q 2026, the market rewarded increased capital investments that were paired with cash flow growth. Microsoft is the perfect example – $183 billion in cash flow from operations (+$46 billion from fiscal year 2025) with $116 billion in capital expenditures (+$52 billion). Changes to the reward mechanism are on our watchlist.
There were many macroeconomic reports released over the last two weeks as well, the most important one being the first (advance) reading of Gross Domestic Product. Nearby is the table showing current-dollar (nominal) and real levels as well as the PCE including and excluding food and energy.
Inflation is meaningfully impacting real GDP growth. When the 2Q 2025 first read was announced (here), real GDP was a robust 3.0% because the PCE price index was a paltry 2.1% (nominal growth was only 5.0%). This comparison helps us understand why volumes are growing faster than wealth.
Who is benefitting from this gap? While not a perfect explanation, we found the latest income quintile analysis to be insightful (here). We also like the Atlanta Fed wage growth tracker by industry (see nearby chart – additional details here). Through June, the average annual growth has been 3.8%, with AI-fueled construction and mining up 4.8% and manufacturing up 4.2%. Public administration increased 4.4% while trade and transportation increased 4.0%. Three of the four fastest growing areas are blue collar (and highly dependent on trade education/ experience as opposed to a four-year degree). We continue to think that today’s blue-collar hours will enable productivity improvements for many white-collar professions.
And, as we have emphasized across many Briefs, economic growth has not been evenly spread across the country. Here is the link to the latest state employment growth data from the Bureau of Labor Statistics. We find employment growth to be a better indicator of state health than the unemployment rate (more employment growth = higher tax base). Here are the top four and the bottom four states for employment growth through June 2026 (percentage growth also shown):
The impact of Federal job cuts in 2025 continues to ripple through the regional economies, particularly in the DC area. It’s going to take some time (or an about face in Federal hiring) to reverse this trend. Regional growth is generally better throughout the Midwest, Southwest and Southeast areas as families move to areas with greater prospects.
We think next Friday’s jobs report will follow these trends, with more upside than downside to current estimates (83-88K new jobs created depending on the source). Increased energy costs and rising interest rates do not appear to be denting US job growth.
2Q Earnings Review – Momentum Leader
After the 2Q earnings dust settled, a new market cap leader emerged. Here is the latest global telecom leaderboard (link here):
While the USA still can claim three of the top five spots, Verizon has jumped to second while T-Mobile USA has slipped to fourth. Seven months ago, T-Mobile USA was the most valuable telecom company in the world with a market capitalization of $214 billion ($45 billion more than Verizon). As of Friday’s close, Verizon has a $10 billion advantage. What changed? Why does Verizon suddenly have mojo?
It’s still early, but Dan Schulman, the CEO of Verizon since October 2025, seems to have found a winning formula that is resonating with investors: 1) Manically focus on customer needs, 2) Radically improve company efficiency, and 3) Establish churn and acquisition metrics and hold managers responsible for delivering results. If we could offer a fourth, it would be to acquire customers due to Verizon’s reputation versus promotion.
The swiftness of change has been felt across all portions of the business. CFO Tony Skiadas cited many key performance indicators on their 2Q earnings call:
“We expect wireless service revenue to be about flat for the full year, which implies that the second half would suggest that we see positive revenue growth. And this comes from a few key areas. I mean, first is the volume growth that you see. Our mobility net adds are up over 500,000 year-to-date year-over-year. And even on FWA, we’re up over 1 million subs, 1.1 million subs year-over-year.
As we mentioned in the prepared remarks, the promo amortization headwinds have peaked and will ease across the second half of the year and into 2027. And then we have things like value-added services such as perks. I mean, number of perks are up like 40% year-over-year. So that’s driving revenue growth. Prepaid is growing. We’re growing volumes and now we’re growing revenue, which is great to see. And then we’re lapping the pricing increases from the second half of 2025. And as Dan mentioned on Simplicity, we’re seeing good green shoots in terms of ARPA accretion and as we look at each segment cohort. So that’s very promising.”
This quote as well as the results that accompany it signal most the positive impact is yet to come. Fixing troubleshooting pain processes is one thing, but introducing/ promoting/ provisioning new plans to the legacy Verizon and new Frontier customer base is entirely different. One impacts near-term churn, while the other impacts long-term gross additions.
Dan’s plan to broaden the base has many dimensions. Here are a few:
- No family (plan) left behind. Fix the pain points for multi-line accounts, and craft attractive Fios/ Frontier bundles with wireless that improve the data experience. While Verizon has expanded their marketing to adjacent segments, they do not appear to be willing to defend every family plan;
- Acquire customers while they are single/ double-line plans, and they will reward you with loyalty. The Simplicity Plan is not aimed at the lowest quartile of consumers, but it’s also not aimed at the highest quartile either. It eliminates any confusion concerning data quality – everyone receives the highest quality available for $30/ line.
- Grow Prepaid. Dan is finally tackling the Tracfone acquisition, transforming it from a business case/ synergy realization exercise into a feeder network for postpaid subscribers.
- Don’t do it alone. When it makes sense, find partners like Google, Amazon, Microsoft, Apple or Meta or others to add value. The fiber sale to Google was a $1 billion masterstroke, and we think a creative deal on the metro fiber deployed as a part of the One Fiber initiative can also be struck. On the business side, while we are skeptical that the BT joint venture will be successful (serving global enterprise locations requires a lot of focus and network prowess – the venture must be accompanied by best-in-class, innovative network solutions), it’s another example of finding the best solution.
Here are the proof points we will look for through the end of 2026 to confirm that this momentum is sustainable:
- Verizon’s promotional activity associated with September’s iPhone launch (and Holiday promotions in general). Can the company resist the previous “everything is free” approach to customer acquisition? Will their competitors (specifically T-Mobile) follow suit? If they don’t, how will Verizon react? Reducing the promotions amortization expense is critical to EBITDA growth.
- Verizon’s development of a meaningfully better converged broadband/wireless product, one that incorporates hardware and services (both hard to do with scale). Verizon can achieve 55-60% broadband penetration if they materially improve the product offering (backup wireless data and home-based UPS would go a long way, but there is a packaging/ upgrade path to get there). By next summer, Verizon should be able to state, “convergence started with bundled pricing but has advanced to ________.”
- Verizon’s capital spending is upwardly revised due to growth demands, not spectrum acquisition. The decision to spend additional dollars on expanding broadband (fiber or FWA) reach versus other uses of that capital requires placing a disproportionate focus on customer needs. The payback horizon is longer, but the franchise value grows. Fiber and FWA expansion capital expenditure expansion will be a sure sign that Verizon has come to play.
Bottom line: Enthusiasm is building at Verizon, and they currently hold the momentum mantle. The management team’s focus on customer needs, company efficiency, and capital allocation is just starting to produce results. T-Mobile and AT&T are not standing still, however. Verizon’s needs multiple response plans ready to implement to maintain their momentum.
The next Brief will focus on AT&T’s ability to strengthen both consumer and business performance across multiple products and the implications of this broad strategy on their competitors. In the meantime, if you have friends who are interested in being notified each time we publish a Brief, please have them sign up at www.sundaybrief.com.
Go Royals and Sporting KC!
Important disclosure: The opinions expressed in The Sunday Brief are those of Jim Patterson and Patterson Advisory Group, LLC, and do not reflect those of CellSite Solutions, LLC, or Fort Point Capital.
