Telecommunications conglomerate AT&T (NYSE: T) reported revenue ahead of Wall Street’s expectations in Q3 2026, with sales up 5.3% year on year to $32.32 billion. Its non-GAAP profit of $0.65 per share was 7.8% above analysts’ consensus estimates.

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StockStory’s take

AT&T’s third quarter saw a strong uptick in revenue, but the market responded unfavorably following a significant shortfall in reported profit. Management attributed revenue growth to sustained customer additions in advanced connectivity services, particularly fiber and fixed wireless. CEO John Stankey highlighted increased converged account adoption and robust expansion in both consumer and business sectors. However, operating margins declined sharply year over year, and CFO Pascal Desroches cited higher customer acquisition costs and non-cash charges as key factors behind the lower profitability.

Looking ahead, management’s guidance centers on expanding fiber reach and leveraging converged offerings to drive long-term growth. The company anticipates continued service revenue and adjusted EBITDA growth, supported by investments in digital experiences and network upgrades. Management cautioned, however, that near-term profitability will be impacted by higher marketing and acquisition costs, as well as seasonal demand moderation. Stankey stressed, “Our strategy is to optimize growth in total advanced connectivity service revenue and EBITDA, not specific operating metrics.”

Key insights from management’s remarks

Management emphasized that strong subscriber growth in advanced connectivity segments, particularly fiber, was offset by margin compression and charges related to asset sales and workforce restructuring.

• Fiber subscriber momentum: The company posted its best quarter in four years for net additions across fiber, fixed wireless, and postpaid phone services, with over one million new advanced connectivity subscribers. This growth was driven by successful introductory pricing and deeper penetration in both existing and newly acquired markets, including those from Lumen.

• Margin pressure from investments: Operating margin fell due to increased equipment revenue and higher customer acquisition costs, as well as significant non-cash impairment and employee separation charges. Management pointed to upfront device spending and expanded marketing efforts as necessary investments to grow the subscriber base and support long-term returns.

• Strategic asset realignment: AT&T advanced its U.S. connectivity focus by announcing the sale of its Mexico wireless business and forming joint ventures to accelerate fiber deployment outside traditional territories. Agreements with Global Infrastructure Partners and Corning are intended to enhance capacity and supply chain stability for future growth.

• Cost transformation via copper retirement: The company continued to wind down legacy copper-based services, targeting operational simplicity and eventual monetization of retired network assets. More than 100 wire centers have now fully transitioned away from legacy technologies, which management expects will drive cost savings through 2029.

• Business segment execution: Improved sales execution and product relevance in the business segment led to a second consecutive quarter of year-over-year revenue growth in business advanced connectivity, with AI-driven demand from hyperscalers like AWS and Microsoft cited as emerging contributors to network utilization.

Drivers of future performance

AT&T’s outlook is built on further expanding its high-capacity fiber footprint while managing margin headwinds from increased acquisition investments and technology transitions.

• Fiber expansion and convergence: Management expects the main driver of future revenue growth to be the continued buildout of fiber infrastructure, aiming for 60 million+ locations by the decade’s end. The strategy relies on growing converged customer accounts—those purchasing both wireless and broadband services—to maximize customer lifetime value and reduce churn.

• Margin and cost discipline: The company plans to offset higher marketing and acquisition costs with operational efficiencies, including ongoing copper network retirement and targeted reductions in capital investment. Management also anticipates that working capital needs will rise in the near term due to device up-front costs, but expects long-term margin stabilization as customer cohorts mature.

• AI and enterprise demand: AT&T’s network investments are designed to support increasing demand for AI-driven workloads, especially from enterprise and hyperscaler clients. The company is focusing on providing high-performance, low-latency connectivity solutions tailored for advanced applications, which management believes will attract new business and justify further infrastructure upgrades.

Catalysts in upcoming quarters

In the coming quarters, the StockStory team will monitor (1) the pace of fiber and advanced connectivity subscriber additions, (2) the company’s ability to manage acquisition costs and stabilize operating margins, and (3) further progress in legacy network retirements and asset sales. We will also watch for continued momentum in enterprise and AI-driven connectivity services, which are expected to shape AT&T’s growth trajectory.

AT&T currently trades at $22.00, down from $23.45 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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