Telstra, Australia's telecommunications giant, has always been a company of intrigue, weathering storms both literal and figurative. The latest earnings transcript, delivered against a backdrop of severe Victorian storms, reveals not just resilience, but a subtle shift in strategy that could have massive implications for investors. While analysts are laser-focused on the cyclical headwinds facing Telstra's Network Applications and Services (NAS) division, a deeper dive into the transcript reveals a potential goldmine that’s flying under the radar: Artificial Intelligence.

Telstra isn't just dipping its toes into AI, it's diving headfirst. CEO Vicki Brady's declaration of becoming an "AI-fueled organization" isn't just corporate buzzword bingo; it's a strategic pillar underpinning Telstra's T25 ambitions. The company is already seeing tangible results, with 50% of key processes optimized through AI, including automatic fault detection and resolution for fixed services. This, coupled with the deployment of generative AI applications like "Ask Telstra", suggests a level of commitment that's far beyond mere experimentation.

The implications for cost reduction are staggering. Telstra is aiming for a $500 million cost reduction target by FY2025. While the majority of this is expected to be realized in FY2025, the proactive implementation of AI across operations suggests a potential for overachievement.

"But the real story lies in AI's potential to supercharge Telstra's growth engines, particularly mobile. With 48% of mobile traffic already on 5G, AI-powered network optimization could unlock significant cost efficiencies in data delivery, effectively allowing Telstra to handle the 30% annual data growth without a proportional increase in CapEx. This translates into a stronger bottom line and, crucially, a more sustainable path toward that coveted $0.19 dividend per share in FY2025."

Consider this: Telstra has consistently highlighted the importance of earnings growth as the primary driver of dividend increases. The market's current expectation for FY2025 dividend per share growth hinges on achieving an $8.5 billion underlying EBITDA. Given the current guidance of $8.2 - $8.3 billion, fueled in part by the NAS headwinds, the path to $8.5 billion seems precarious at best.

EBITDA Growth: Projected vs. AI-Powered

The following chart illustrates how AI-powered efficiencies could bridge the gap to the targeted $8.5 billion EBITDA.

This is where AI enters the equation. If AI-powered efficiencies in mobile alone could deliver an incremental $100-200 million in EBITDA, the path to $8.5 billion becomes not just achievable, but potentially surpassable.

Furthermore, Telstra's partnership with Quantium, a data analytics powerhouse, opens up avenues for AI-driven revenue generation. The recently launched Scam Indicator, developed in collaboration with Commonwealth Bank, is a prime example of how Telstra can leverage its vast data troves and AI capabilities to develop innovative, market-ready solutions.

Telstra's history is replete with instances of transforming challenges into opportunities. From the initial privatization to the rollout of the NBN, the company has consistently demonstrated an ability to adapt and thrive. This current focus on AI, coupled with the inherent growth potential of its core businesses, suggests that Telstra might just have another ace up its sleeve. While the market fixates on short-term NAS woes, savvy investors might be wise to focus on the bigger picture: Telstra's strategic embrace of AI could be the catalyst for a future that's far brighter, and more profitable, than many anticipate.

"Fun Fact: Telstra operates Australia's largest subsea cable network, responsible for carrying a third of Intra-Asia and a quarter of Trans-Pacific traffic. This critical infrastructure highlights Telstra's importance not only domestically but also within the broader Asia-Pacific region."