Morgan Stanley has named its favorites in the European telecom sector – and a German company is at the top of the list.
• Morgan Stanley names Deutsche Telekom as a top pick in the European telecom sector
• Analysts see strong earnings growth and attractive valuation
• Four more top picks on the favorites list
The European telecoms sector remains an exciting playing field for investors. According to a recent analysis from Morgan Stanley, available to Investing.com, several companies have particularly good opportunities to benefit from structural trends such as increasing data usage, infrastructure advantages and more stable cash flows. A German group is also one of the investment bank’s favorites: Deutsche Telekom. The analysts evaluate the industry based on network quality, growth prospects and financial indicators, among other things, it is said.
Deutsche Telekom shares as Morgan Stanley’s top favorite
At the top of the list is Deutsche Telekom. As Investing.com reports, Morgan Stanley ranks the Bonn-based telecommunications group as a “top sector pick,” citing the company’s world-class network infrastructure.
Analysts view the expected growth in operating profits as particularly positive. According to Investing.com, Morgan Stanley forecasts Telkom will achieve sector-leading earnings growth of 6 percent per year in EBITDA AL.
Another factor is the US business around T-Mobile US, which continues to be a growth driver, it is said. Morgan Stanley emphasizes that the so-called US stub business, i.e. the remaining investment, is currently only valued at three times EBITDA AL – an attractive valuation level compared to the industry.
The group has also recently been able to impress operationally. Deutsche Telekom exceeded expectations for core operating earnings in the fourth quarter of 2025, supported by a slight recovery in the home market and strong development by the US subsidiary T-Mobile US. At the same time, the group is pushing forward its AI strategy and has launched one of the largest AI factories in Europe together with NVIDIA.
“We have expanded our network leadership, are improving our business in all areas through the consistent use of artificial intelligence and are thus continuing our success,” Tim Höttges, CEO of Deutsche Telekom, is quoted as saying in the press release on the Q4 results. Ferri Abolhassan, head of the service arm T-Systems, added in the media conference that Deutsche Telekom sees itself as Europe’s first provider of private and sovereign cloud services and aims to increase its sales with T Cloud Public by 20 percent in 2026.
Infrastructure and mobile communications markets in the focus of analysts
In addition to Telekom, Morgan Stanley also sees opportunities in Helios Towers, according to Investing.com. The UK-based company operates cell towers primarily in high-growth markets. According to the analysis, the stock is currently trading at a discount of around 50 percent compared to other European tower companies. According to the investment bank, this indicates a clear valuation gap in the infrastructure segment.
Swisscom is also one of the favorites. According to analysts, Swiss Telekom benefits from particularly high network quality, as Investing.com reports. In addition, price increases and possible consolidations in the Italian telecom market could offer further potential. Swisscom also announced at the end of January that it would increase prices for several premium services – including broadband, mobile communications, TV and landline telephony – from April 2026.
Cash flow potential and data center trend: These stocks could also benefit
Another top pick is BT Group from the UK. The analysts see an impending turning point in the development of free cash flow for the group. Morgan Stanley expects free cash flow to rise from 1.5 billion pounds in March 2026 to 2 billion pounds in March 2027 and could reach around 3 billion pounds by the end of the decade, according to Investing.com.
The list is rounded off by the network supplier Nokia. According to the investment bank, the Finnish company benefits from its special positioning when it comes to investments by large cloud and tech companies. Above all, the increasing demand for connectivity in data centers could bring long-term growth here.
Bettina Schneider / editorial team finanzen.net
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