Cogent Communications (NASDAQ:CCOI) Chief Executive Officer Dave Schaeffer said the company is positioned to benefit from growing artificial intelligence infrastructure demand through both higher internet traffic and increased demand for optical wavelength services, though he cautioned that deployment bottlenecks may delay the pace at which that opportunity is reflected in financial results.
Speaking at an Oppenheimer conference with communications analyst Tim Moran, Schaeffer said Cogent, which he described as the world’s largest carrier of internet traffic, has seen traffic growth accelerate. Year-over-year traffic growth rose to 16% in the second quarter from 12% in the first quarter, he said.
AI Training Supports Wavelength Demand
In addition to internet transit, Schaeffer said AI development is supporting demand for Cogent’s wavelength business, which provides optical transport between locations. He said AI developers often need to connect data storage locations with separate facilities used to train large language models.
Because graphics processing units represent a significant share of data-center capital expenditures, AI operators seek to maximize their utilization, Schaeffer said. He argued that the higher cost of wavelength services relative to public internet connectivity can be justified by their defined latency characteristics.
Cogent has historically served international carriers, regional carriers, content distributors and cloud providers in the wavelength market, but Schaeffer said the company is now seeing increased interest from hyperscalers and “neoclouds” involved in AI training.
He said Cogent’s wavelength revenue grew 9.2% sequentially and 68% year over year in the most recent quarter. However, he noted that the business remains relatively small, representing 6% of company revenue, or approximately $60 million. Cogent has grown from no share to roughly 3% of the wavelength market in six quarters, according to Schaeffer.
- Cogent has sold wavelength services to 548 unique customers or service providers.
- The company has sold those services in 608 locations.
- Schaeffer said Cogent’s wavelength advantages include more sites, faster provisioning, unique routes, reliability and lower pricing.
Infrastructure Constraints May Delay Purchases
Despite the reported demand backdrop, Schaeffer said many potential customer deployments are not yet actionable because data centers, power systems, GPUs, servers and memory capacity must be in place before customers require wavelength connections.
He cited shortages in power, data-center capacity, processing equipment and memory chips as constraints on AI infrastructure construction. Schaeffer said these shortages are easing but likely will remain an issue for some customers for roughly two years, absent a major shift in capital-market conditions.
He also identified power availability as a longer-term challenge. Traditional data centers use about 2.5% of global power availability, while AI alone would require roughly 3%, he said. Data-center permitting, water availability, pollution concerns and political resistance to new projects could further slow development, according to Schaeffer.
Still, Schaeffer said the scale of announced AI investment should eventually encourage suppliers to address bottlenecks. He said $1 trillion of capital has been deployed to date and another $6 trillion has been announced, while noting that much of the anticipated demand remains in development.
Questions Around AI Monetization
While describing AI as potentially as transformative as the internet, Schaeffer expressed skepticism over returns on capital for companies funding infrastructure expansion. He said the industry’s current approach to developing AI models is power-intensive and that competition should eventually reduce the cost of compute hardware and improve energy efficiency.
Schaeffer also said the long-term value creation from AI may occur primarily at the application layer or accrue to consumers, rather than to infrastructure providers. He compared the prospect to the internet era, when telecommunications and cable providers experienced declining revenue per bit while applications such as Google, Netflix and Uber captured substantial value.
He said AI could make software development and professional services—including accounting, legal, engineering and medicine—more efficient, while lowering barriers to creating businesses. However, he said it remains unclear how AI providers will monetize inference services and earn returns on their infrastructure investments.
Cogent Seeks Return to Revenue Growth
Schaeffer acknowledged that Cogent has faced a difficult period, citing his forced stock sale, revenue declines associated with the acquired Sprint business, increased capital intensity to repurpose assets and higher net leverage. He said those factors have affected the company’s enterprise value.
Cogent had delivered 10.2% organic growth for 18 consecutive years before reporting three years of declines following the Sprint acquisition runoff, Schaeffer said. Although the company has expanded EBITDA and reduced costs during that period, he said investors want to see top-line growth return.
He said management is addressing its balance sheet, working to improve growth and maintaining cost discipline and margin expansion. Schaeffer characterized Cogent as being “in the right place at the right time” as AI-related internet and optical-networking demand develops.
About Cogent Communications (NASDAQ:CCOI)
Cogent Communications (NASDAQ:CCOI) is a multinational Internet service provider specializing in high-speed Internet access and data transport services. The company operates one of the largest Tier 1 IP networks in the world, offering wholesale and enterprise customers reliable, low-latency connectivity. Cogent’s core services include dedicated Internet access, Ethernet transport, wavelength services, and MPLS-based IP Virtual Private Networks, all delivered over its privately owned, fiber-optic backbone.
In addition to network connectivity, Cogent provides data center colocation and managed services designed to support businesses with demanding bandwidth and redundancy requirements.
