China telcos soar on cloud, AI craze

China's big three operators continue to enjoy the sweet spot, buoyed by strong cloud and enterprise demand. Their quarterly results, filed last week, would be the envy of most telcos.

Heavyweight China Mobile hiked net income by 9.5% to 28.1 billion Chinese yuan (US$4.1 billion), increased revenue by 10.3% and EBITDA (earnings before interest, taxes, depreciation and amortization) by 4.9%. Rival China Telecom lifted earnings by 10.5% and revenue by 9.4%, with China Unicom up 11.2% and 9.2% respectively.

Figure 1: China Mobile has become China's third largest company overall.
Source: Grid Scheduler on Flickr
(public domain)

China Mobile's enterprise revenue totaled CNY29 billion ($4.2 billion), up 24% for the quarter, while total telecom services revenue rose 8.3%. This robust financial performance has not just caught the eye of the telecom industry. It's captured the attention of investors and put a rocket under their stocks.

China Mobile is now China's third-largest stock by market cap. Combined with the market cap of its Hong Kong listing, as some China analysts have done, it is China's largest.

Its Shanghai shares closed at CNY100.80 ($14.62) Monday, down CNY0.49 ($0.07), for a market cap of CNY1.30 trillion ($188 billion). The stock is up 40% since the start of the year and 75% since its milestone $9 billion IPO at the beginning of 2022.

Building China's digital infrastructure

Its two local rivals have enjoyed a similar run-up. China Telecom's stock has risen 71% and China Unicom's 95% in the past 12 months.

China Mobile is shaded on the domestic bourse by Kweichow Moutai, the maker of the fiery rice liquor, with market capitalization of CNY2.17 trillion ($333.5 billion), and banking giant ICBC on CNY1.69 trillion ($245 million). But if aggregated with its Hong Kong market cap, valued at 1.48 trillion Hong Kong dollars (US$189 billion), it would be comfortably the biggest.

Of course, the real significance is not about the relative size but what this tells about the telcos and their role in China's digital economy.

Thanks to a series of government decisions, the three operators will capture virtually all of the value in building and operating China's digital infrastructure over the next decade – including cloud, 5G, 6G, data center and computing. The arrival of generative AI in the last few months, with its transformative potential and enormous thirst for digital capacity, has been a force multiplier.

As Bloomberg summarized it: "The typically-staid telecom sector has come under the spotlight this year on the back of growing interest in AI-driven chatbots, revaluation on their cloud computing prospects, and Beijing’s bid to promote next generation network technology."

For what it's worth, China Mobile has also become the world's largest telecom stock by market cap, ahead of T-Mobile ($178 billion), Verizon ($157 billion) and AT&T ($130 billion).

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— Robert Clark, Contributing Editor, special to Light Reading