Oppenheimer Says SpaceX Could Disrupt a $1.6 Trillion Industry. AT&T and Verizon Investors Should Be Worried.

In a recent note to investors, Oppenheimer analysts suggest that SpaceX has the assets to disrupt the $1.6 trillion U.S. communications industry by way of the company's Starlink satellite broadband service.

Let's unpack how Starlink has the potential to pressure legacy telecommunications players such as Verizon Communications (NYSE: VZ) and AT&T (NYSE: T), ultimately forcing investors to rethink some assumptions about the kind of infrastructure that will dominate the next era of data transmission.

How could Starlink revolutionize the communications industry?

According to SpaceX's S-1 filing, Starlink boasted 10.3 million subscribers at the end of the first quarter. Oppenheimer's 2030 forecast for Starlink's U.S. broadband customer base is currently 15 million, implying rapid acceleration over the next several years.

Starlink's competitive edge comes from delivering low-latency, high-speed internet from space. This approach is different from traditional cable or fiber networks that rely on ground infrastructure and may struggle in lower-density areas.

Interestingly, Oppenheimer thinks Starlink will evolve beyond a consumer broadband provider. Should Starlink become more heavily used in critical environments such as emergency response or military operations, as well as more enterprise markets, churn rates could fall and provide the company an opportunity to command higher pricing power.

Moreover, Oppenheimer goes on to suggest that SpaceX and its broader umbrella could eventually move into the handset market -- an opportunity analysts believe is worth half a trillion dollars.

Image source: Getty Images.

Why AT&T and Verizon could become risky investments

Deploying and maintaining buried fiber, coaxial cables, poles, and wiring costs Verizon and AT&T billions of dollars annually and often scales poorly. Indeed, Starlink's satellite constellation also comes with massive upfront capital outlays. However, the company sidesteps some of the location-specific expenses of terrestrial last-mile infrastructure as its orbital assets can theoretically be refreshed via Starship's reusable rockets -- helping lower incremental per-user costs once a constellation is in place.

If Starlink's growth accelerates throughout the remainder of the decade, AT&T and Verizon could be hit particularly hard as their heavy exposure to broadband, video, and services becomes increasingly vulnerable to satellite substitution. As a result, these companies could endure greater subscriber erosion, compressed profit margins, and a shrinking total addressable market for legacy telecoms infrastructure.

Investors who have relied on passive income in the form of steady dividends and predictable cash flow from Verizon and AT&T may come to find that the telecom industry's historical growth engines are migrating to orbit.

Are traditional telecoms stocks still worth buying?

The communications industry is far from disappearing. Rather, it is being transformed by space. Oppenheimer simply raised its space-economy revenue projection for 2035 to $800 billion -- up from $500 billion -- signaling robust secular tailwinds in orbital infrastructure that far outweigh the incremental gains typically seen in traditional telecom businesses.

In all likelihood, the upcoming SpaceX IPO will serve as a marketwide catalyst for satellite and space infrastructure stocks. Smart investors might view this as a moment to pivot their portfolio allocations by gradually reducing overexposure to legacy wireline and wireless incumbents and seeking some exposure to the companies leading the next decade's orbital wave.

Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.