A Guide to Investing in 5G Stocks
They say that the most compelling investment themes for your average Joe retail investor are the ones where society encounters some calamity and only a small set of astute investors are smart enough to see it coming and profit from it. For example, you often see apocalyptic prophecies on gold investment websites that play on our desire to become extremely wealthy while the economy collapses around us. In a similar fashion, investors are often attracted to investing in themes that are surrounded by controversy.
Everyone talks about how horrible pharma companies are but these same people won’t hesitate to invest in a stock that’s working on some blockbuster drug. Gene editing could very well spell the end of mankind if it gets in the wrong hands, but not before we’ve profited on some gene-editing stocks. Then there’s 5G, which for some reason, everyone wants a piece of, even though there is no shortage of interesting theories around the technology. Coincidence? We have no idea, but today we’re here to talk about 5G stocks.
The 5G Revolution
Why is 5G Such a Big Deal?
If you’re not up to speed on the promise of 5G technology, then check out our piece on what 5G is and why it’s such a big deal. Simply put, imagine if smartphones were able to download videos of Kim Kardashian putting on makeup 1000X faster than they’re able to stream them today. Newly deployed 5G networks are expected to provide an enhanced broadband experience with speeds of up to 1 Gigabit per second and latency of less than four milliseconds. Optical networking equipment provider Ciena put together a nice set of bullet points which highlights the wow factor around 5G.
- Up to 1000 times increased in bandwidth, per unit area
- Up to 100 times more connected devices
- Up to 10Gbps connection rates to mobile devices in the field
- A perceived network availability of 99.999%
- A perceived 100% network coverage
- Maximum of 1ms end-to-end round trip delay (latency)
- Up to 90% reduction in network energy utilization
This sudden expansion of bandwidth will enable other disruptive technologies like autonomous robotics and connected vehicles.
The 5G Rollout
The GSMA is an industry organization that “represents the interests of mobile operators worldwide, uniting more than 750 operators with over 350 companies in the broader mobile ecosystem.” Last April, the GSMA published a 288-page diatribe titled “The 5G Guide – A Reference for Operators.” We read through it so you don’t have to, extracting interesting insights like this one.
With 4G networks already covering 81% of the global population across 208 countries, and 5G networks set to cover nearly 40% of the global population by 2025 (GSMA Intelligence), the 5G Era is truly upon us.Credit: GSMA
As for 4G LTE, it will coexist with 5G in much the same way 3G and 4G coexist today. 5G technology is a necessary upgrade of the biggest consumer technology there is today – smartphones, the small supercomputers carried on their person by more than 5 billion people. China is an early adopter, which means 5G coverage is expected to grow faster than 4G did. Speaking of China, we’ll leave the discussion of Chinese 5G stocks for another time. Today, we’re going to focus mainly on companies and stocks outside of China.
How to Find the Best 5G Stocks
There are a huge number of search queries around the “best” 5G stocks to buy and the best time to buy them. Everyone is looking for that one magical 5G stock that could be “the next Microsoft.” One could argue that by the time the herd recognizes an opportunity, it’s already too late. That may very well be the case, but all it takes is one recession for tech stocks to go on sale and then you can go bargain shopping with your dry powder. We just need to figure out which stocks out there give us exposure to “the 5G revolution.”
The 5G investment thesis affords us the opportunity to walk our readers through how we go about finding stocks for any given disruptive technology theme. People always talk about “the best stocks,” and we consider those to be stocks that give you pure-play exposure. In order to find such stocks, we usually take the following steps.
- See what the experts say
- Find out if any ETFs exist
- Think through the thesis using common sense
In regards to the first bullet point, regular readers will recall an article titled “This 5G Stock is About to Blow” which took the piss out of all the digital nomads trying to tout 5G stocks as if they were the next Nostradamus. These same morons were running ads on our site which we largely have no control over so we felt compelled to warn our readers. Lesson one, don’t listen to what some guy drinking beers in Jamaica has to say about 5G stocks. In fact, you should never take advice from someone who doesn’t have to live with the consequences – even the experts.
What the Experts Say About 5G Stocks
One of the things they teach you in business school is to leverage the hard work of others and take credit for it. Let’s start by putting together a 5G stocks list based on what some of the talking heads have been discussing.
- Zacks – MACOM Technologies, Acacia Communications, Apple, NVIDIA, Telefonaktiebolaget LM Ericsson
- US News – Xilinx, Qualcomm, Ericsson, Crown Castle, Verizon, Marvell Technology, Apple
- Motley Fool – Qualcomm, Skyworks Solutions, Xilinx, NVIDIA, Corning, Ciena, Crown Castle, American Tower
- InvestorPlace – Verizon, MACOM Technologies, Apple, Boingo, Qualcomm
- MarketBeat – Applied Materials, Crown Castle, Intel, Qualcomm, Ericsson, Cisco, VMWare, AT&T
- Benzinga – Nokia, ASE Technology, Blackberry, Cheetah Mobile, Wipro
- Investor’s Business Daily – too many to list
All we did here was search the term “5G stocks,” and then make a list of stocks from the articles that came up. Each of these sources may have many ideas about 5G stocks, but these happened to be the ones that they’re talking about now. It’s apparent that – in the case of most disruptive technology themes – nobody can agree on what stocks should be classified as “5G stocks.” What we can do with this information is try to come up with some sub-themes around 5G for investors.
Core Network Infrastructure for 5G
When talking about 5G deployment, one name that seems to come up a lot is Ericsson (ERIC), a $29 billion Swedish company that sells products and services to telecom companies across the globe. In addition to 5G being a focal point in their 2019 Annual Report, the company released a 5G presentation earlier this year that talks about the progress they’ve made in rolling out 5G across the globe. A total of 81 commercial 5G agreements have led to the first commercial 5G live networks in 4 continents.
There are also some other themes to explore under 5G infrastructure such as cellular towers and fiber optics.
Cellular Towers for 5G
Cellular towers are the backbone behind the rollout of 5G mobile internet connectivity says a brief by Morgan Stanley which postulates that tower companies are particularly attractive because they can support multiple carriers as opposed to telecom-owned towers. They’ve identified eleven stocks across the globe that may benefit from the 5G boom, but think investors should focus on American firms.
Relative to their global peers, U.S. towercos have two advantages: Higher barriers to entry due to stringent zoning laws in key markets and lease escalators that give them more leeway to raise prices, vs. the inflation-indexed pricing norm in many other regions.Credit: Morgan Stanley
According to WirelessEstimator.com, three companies control 77% of the cellular towers in the United States.
- American Tower (AMT) – With a present-day market cap exceeding $107 billion, it’s one of the largest global Real Estate Investment Trusts (REITs) with nearly 41,000 properties in the United States and approximately 139,000 properties internationally.
- Crown Castle (CCI) – A $65 billion domestic-only cell tower company with a dividend yield of 3% to boot. Also owns and operates one of the largest and densest fiber networks in the country.
- SBA Communications (SBAC) – A $32 billion independent owner and operator of wireless communications infrastructure
Readers familiar with Elon Musk’s Starlink may be wondering if satellites may power tomorrow’s 5G wireless networks. Initially, 5G deployment will take place in densely populated areas. In order to extend 5G where there isn’t coverage from cell towers, satellites will be needed. In this way, satellites will supplement towers instead of replacing them.
Fiber Optics for 5G
So far we’ve talked about 5G in the context of wireless connectivity, but there are some infrastructure upgrades that might not be so obvious – like fiber optics. When researching 5G, you’ll inevitably come across the acronym RAN.
A radio access network (RAN) is part of a mobile telecommunication system. It implements a radio access technology. Conceptually, it resides between a device such as a mobile phone, a computer, or any remotely controlled machine and provides connection with its core network (CN).Credit: Wikipedia
A blog post by Ericsson talks about how the deployment of 5G will place a high demand on existing fiber routes that may need to be upgraded. “5G wireless needs fiber, and lots of it,” says a blog post by Ciena (CIEN) which happens to be a global leader in the production of optical communications equipment.
Another fiber optic equipment provider is Corning (GLW), the original inventor of low-loss optical fiber that’s delivered over 621 million miles of the stuff across the globe. Corning also makes the Gorilla Glass used in smartphones. Speaking of which…
More than 30 new 5G devices will be introduced this year, and Morgan Stanley anticipates that “5G devices could represent nearly a third of all smartphones shipped next year.” With half of all adults across the globe owning a smartphone, companies like Apple (AAPL) are expected to benefit from the sale of 5G-enabled smartphones as consumers realize the benefits of upgrading.
Morgan Stanley thinks that 5G will enable augmented reality which just might be the next killer app. The rumor mill says that Apple Glasses are the augmented reality device that Google Glass was supposed to be. It’s important to remember that personal devices which leverage 5G aren’t exclusive to smartphones. Whatever form factor 5G devices come in, they’ll all need some 5G chips.
The name mentioned most often in reference to 5G chips is Qualcomm (QCOM) an $88 billion provider of digital communications products which sells more smartphone chips than any other company in the world. Recent forecasts from Qualcomm estimate 175 million to 225 million 5G smartphones to be shipped in 2020. Now that they’ve finished punishing Apple for being bad, they can focus on what they call “the innovation platform for the next decade.” A recent investor deck highlights how they plan to use 5G to enable everything from AI at the edge to the Internet of Everything. Where Qualcomm may have an advantage is in their extensive portfolio of intellectual property surrounding 5G technology. You can read all about it in their lengthy presentation titled “What’s in the Future of 5G?“
Other companies building 5G chips include:
- Qorvo (QRVO) – $11 billion provider of Radio Frequency (RF) solutions. Shipped over 100 million 5G wireless infrastructure components since January 2018.
- Skyworks Solutions (SWKS) – $19 billion semiconductor products provider that is developing a plethora of products targeting applications from smartphones to industrial IoT.
Another name that comes up when talking about 5G chips is Xilinx (XLNX), a company we’ve talked about before in the context of AI chips. Says an article by IBD on 5G investing, Xilinx “makes programmable chips built into prototype network gear, but as 5G standards are approved, network gear makers will use fewer custom parts.” Speaking of AI chips, NVIDIA (NVDA) is another name being thrown around in respect to 5G chips. We touched on that in a recent article which asked, “Is NVIDIA Stock Still a Good Way to Invest in AI Chips?”
The Best 5G Penny Stocks Are No 5G Penny Stocks
In this guide, we’ve made an attempt at surveying the 5G landscape to see what companies might stand to benefit from the deployment of 5G. Depending on how much interest this guide generates from our readers (largely gauged from comments and social shares), we may look to deep-dive into some “5G stocks” on this list or even unearth some new ones. This is not meant to be a comprehensive list of every 5G stock out there, but rather a guide to point investors in the right direction. If we missed a 5G stock that you think ought to be on this list, just drop us a comment below and we’ll take a look – unless it’s a penny stock.
We’d like to think that every investor out there knows that penny stocks – what we also call over-the-counter (OTC) stocks – should be avoided like the plague. No matter how convincing an investor deck they present, these ventures will fail spectacularly 99% of the time and you will lose your money. Whatever you do, never dabble in 5G penny stocks, no matter how compelling a story is being told. The stock market is difficult enough to navigate without having to wade through a bunch of pump-and-dump scams.
If you’re looking for the top 5G stock, there isn’t one. Sure, you’ll find plenty of people trying to tell you they found the one stock that’s going to give you more exposure to 5G than any other, but these are the same people who will tell you how much money there is to be made in options trading. Much of the hype surrounding 5G is probably already priced into many of the stocks that are expected to benefit from the 5G revolution.
Amazon was approved by the FCC to launch 3000+ satellites and Apple nearly 3000 satellites. Bezos started a satellite company in Huntsville, Al. I found the following satellite companies operate in Huntsville: IRDM, LDOS, SATS and VSAT. Am I heading in the right direction thinking there must be a reason Bezos started his satellite company in Huntsville is that there are resources he will need there? Also I think that TER will have a place in tower projects.
Thanks for the comment Kenneth. That’s an interesting observation on Amazon’s $200 million investment in a rocket engine plant in Hunstville.
When you say TER, are you referring to Teradyne? If so, we’ve been holding them for a while now based on their industrial robotics ambitions.
If you did refer to TER, any quick color on how they’re expected to have a place in tower projects?
Motley Fool suggests that 800,000 more towers will be needed for 5G in the U.S. On the other hand Amazons $10B Project Kuiper was recently approved by the FCC to launch 3200+ satellites.
Bezos has his own company Blue Origen that makes his rocket engines in Huntsville, AL. I am not sure whether satellite or towers is where to invest. I am looking to see which smaller companies may profit from assisting in these projects. From my reading Teradyne has a unique ability to robotically test circuits for quality. I do not have any insights about them. If their product is unique and the best way of getting the job done it seems like a food place to invest.
We’re long Teradyne and check in with them about once a year. Last piece was this one:
Take a look at Teradyne’s latest 10-K (https://www.sec.gov/ix?doc=/Archives/edgar/data/97210/000119312520058676/d860886d10k.htm)
Press CTRL-F and then search the page for “5G.” You’ll read how 5G is impacting various segments. They’re attributing revenue growth for various segments to 5G testing. Quite interesting stuff! It’s another reason to like Teradyne.
In our next update on Teradyne for, we’ll dive into the 5G thesis more. Thank you for pointing this out!