Two hot stocks from the market's hottest sector this year (and no, it's not tech!)

The ASX telecommunications sector is on a tear. Up almost 17% year-to-date, making it the top performer over the period and nearly 23% over the past 12 months, the sector has outpaced almost every corner of the market, second only to information technology. 

While Telstra (ASX: TLS) still dominates investor mindshare (and the index weighting), Australia’s telco sector is far more diverse than many realise. Alongside the big names in mobile and broadband, it houses world-class online businesses such as REA Group (ASX: REA), CAR Group (ASX: CAR), and Seek (ASX: SEK), plus media heavyweight News Corp (ASX: NWS). 

The sector’s strength has been underpinned by robust fundamentals, market discipline, and, in some cases, company-specific catalysts that have driven earnings upgrades in a market starved of them.

To dig deeper into the rally, and find out whether it still has legs, I sat down with Andrey Mironenko, Portfolio Manager at Alphinity Investment Management. We explored the drivers of recent performance, the risks to watch, and the companies that stand out for their innovation, execution, and infrastructure strength.

From the dominance of Telstra and the resurgence of Spark (ASX: SPK), to the pricing discipline that’s holding the industry together, Mironenko shares where he sees the most compelling opportunities and the conditions that will need to hold for the sector to remain in top gear.

Beyond Telstra – a broader playing field

While Telstra remains the sector’s heavyweight and main driver of recent outperformance, Mironenko notes that smaller players are also finding their footing. 

One standout is Spark, which has enjoyed a strong three months thanks to board and management renewal. A potential data centre sell-down could strengthen its balance sheet and set the stage for an earnings recovery.

The rally’s real drivers

The sector’s 23% gain over the past year is not just about investors chasing defensives. 

“The biggest driver of this outperformance has been Telstra". 

At Alphinity, the focus is on high-quality, reasonably valued companies in an earnings upgrade cycle and Telstra has delivered just that, with consensus upgrades following a strong first-half result. 

Rising cash generation, thanks to the near completion of the Intercity Fibre project, is another tailwind, enabling more capital management, including buybacks and potentially higher dividends.

Managing risks in a disciplined market

Risks for Telstra appear manageable in the near term, with pricing discipline in mobile services the key to earnings leadership. All three major players – Telstra, Optus, and TPG (ASX: TPG) – have consistently raised prices to repair returns. 

“We believe this discipline is likely to sustain,” says Mironenko, pointing to low ROIC at Optus and TPG’s cost inflation from recent infrastructure divestments. Wholesale and MVNO pricing is also rising, reducing the risk of competitive undercutting.

Innovation and scale matter

Telstra stands out as the clear sector leader, underpinned by unmatched infrastructure, ongoing investment in digitisation and operations, and a new focus on AI through its Accenture partnership. 

Smaller players have found niche advantages through innovation, but none match Telstra’s scale and execution.

Portfolio picks – Telstra and Spark

Telstra is Alphinity’s largest position, driven by expectations of continued mobile ARPU growth, rising cash generation, and disciplined capital returns. AI is seen as a lever to offset cost inflation. 

Spark is a newer addition, with low expectations but a set of catalysts deleveraging via asset sales, sustainable dividends, and board renewal that could drive a re-rating.

Managed Fund

Alphinity Australian Share Fund

Australian Shares

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