A myriad of headwinds has hampered American Tower (AMT -0.70%) this year. As a result, the infrastructure-focused real estate investment trust (REIT) is only on track to grow its adjusted funds from operations (FFO) by 0.3% per share. That's a dramatic deceleration for a company that had been growing at a double-digit annual pace over the past decade. It has put a lot of downward pressure on the stock, which has lost nearly 20% of its value from its peak.

However, while a few things are currently holding the company back, those headwinds are beginning to fade. Meanwhile, 5G will provide a robust growth tailwind in the coming years. That drives the company's view that it will grow its tower business at a healthy pace.

Unabated growth

"The fundamental factor that drives demand for our global tower portfolio, growth in mobile data consumption, continues unabated," stated American Tower CEO Tom Bartlett on the company's third-quarter conference call. He pointed out that "mobile network data traffic has almost doubled over the last two years alone to a staggering 126 exabytes per month."

The company expects this to continue. Bartlett stated: "Looking out over the next five years, forecasted growth in data traffic per device remains compelling as more spectrum for 5G networks will be deployed at scale. Average monthly data usage per smartphone across our key developed markets like the U.S., Germany, and Spain is expected to grow at a healthy compounded annual rate of 18% between 2023 and 2028."

Growing data usage is increasing the demand for communications infrastructure. That's enabling the infrastructure REIT to add more tenants to its existing towers, driving healthy organic tenant billings growth. That metric was up over 6% during the third quarter across its global tower portfolio. It's also providing the company with opportunities to build more tower sites. The REIT is investing $1.7 billion this year to build new tower sites (primarily overseas) and expand its U.S. data center business. These two drivers will grow the cash flows of its global tower portfolio over the long term.

The three stages of 5G

American Tower believes the telecom industry is still very early in the 5G network investment cycle. Bartlett commented, "Just as we saw with the 3G and 4G rollouts, we expect the 5G investment cycle to play out in three phases that represent discrete business cases for the carriers, and these three phases will drive two peak periods of spend that are bridged by a temporary phase of more moderate activity."

Bartlett pointed out that the U.S. telecom industry spent a record of over $40 billion last year building out their 5G networks. Those investments were coverage-driven. Mobile carriers upgraded existing infrastructure with new spectrum bands and radio technology to provide broad nationwide 5G coverage.

The industry is now past the peak of its initial heavy investment phase. However, while spending is moderating, Bartlett stated: "We retain a high degree of conviction that there's a long tail of network investment to come. This belief is predicated on several factors, including our experience with past investment cycles, industry forecast for growth in mobile data consumption that apply a necessity for significant incremental coverage and capacity, and the visibility into network needs we get through our contract structures."

He noted that investment spending in the second phase will see mobile carriers focus on harvesting the network efficiency benefits of their initial investment to build out their networks. This investment will enable them to shift the majority of their network traffic to 5G, which the company expects will happen in 2025. While the industry will spend less capital than last year through the early part of this phase, at $35 billion in 2023, it's $5 billion more than the average spending during the 4G investment cycle.

Finally, American Tower sees "a third capacity-focused phase aimed at significant densification of 5G networks." That will require even more infrastructure. The industry will need to add additional towers and build smaller cell networks to support more data-intensive applications like higher-resolution video.

Not done growing

With two more 5G investment phases ahead, American Tower has a lot of growth left in its U.S. tower business. Meanwhile, its international tower business is even earlier in the 5G investment cycle. So, while the REIT's earnings growth rate has slowed to a crawl this year, a reacceleration awaits. That growth potential makes American Tower look like a compelling long-term investment opportunity, especially considering the sell-off in the shares.