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5G Stocks 2020 Forecast
March 25 2020 - 5G Stocks: China Coronavirus, Apple 5G iPhone Launch Key To Momentum By Investors Business Daily
Telecom companies are in the early stages of building out 5G wireless networks. What 5G stocks will get a boost as network deployment gains traction? Look for management commentary on company earnings calls that reveal 5G-related business momentum.
The rapidly spreading China coronavirus, also called Covid-19, slowed 5G wireless momentum in early 2020. Many 5G stocks, especially semiconductor companies, took a hit.
Research firm Strategy Analytics lowered its forecast on global 5G smartphone shipments to 199 million from 250 million. "Coronavirus has swept like a tornado through the global smartphone market in the first quarter. We expect a recovery later in the year," Strategy analyst Neil Mawston told Investor's Business Daily.
Bank of America has lowered its global 5G smartphone forecast to 160 million from 200 million. "We expect a strong recovery in 2021, with 5G units at 400 million and 625 million 5G units in 2022," BofA analyst Vivek Arya said in a report to clients.
5G Stocks: Apple iPhone Launch Key Event
Samsung and Huawei currently make most 5G smartphones. China is expected to account for most 5G phone sales in 2020.
But Apple (AAPL) will be a big factor in the 5G wireless market. Apple stock has gained on views that 5G iPhones will provide the first meaningful consumer upgrade cycle in several years.
According to IBD Stock Checkup, Apple stock has a Relative Strength Rating of 94 out of a possible 99 amid the coronavirus stock market correction.
Apple is expected to roll out its 5G iPhones in September. However, the Covid-19 outbreak slowed the production of key smartphone components. With the coronavirus apparently under control in China, factory production is expected to bounce back in April. However, the launch of Apple 5G iPhones could be delayed by a month, analysts say.
It's unclear how much other parts of the supply chain for 5G networks, such as radio antennas, will be impacted by the coronavirus.
Countries Ahead Of U.S. In 5G South Korea and China have jumped ahead of the U.S. in 5G wireless deployment as Europe lags. U.S. wireless firms such as Verizon Communications (VZ), AT&T (T), T-Mobile US (TMUS) and Sprint (S) are expanding 5G mobile networks in anticipation of the Apple 5G launch.
The T-Mobile acquisition of Sprint is expected to close in early April. With Sprint's midband radio spectrum, T-Mobile aims to be a leader in 5G wireless services.
Marketing machines at wireless firms have revved up.
"5G really is now the new front line in an industrywide public relations war, which will keep the topic front and center," Bank of America analyst David Barden said in a note.
However, some analysts caution that new 5G-specific consumer applications have yet to emerge. So the expected 5G "super cycle" may disappoint.
5G Stocks: Chipmakers Expect Multiyear Boom
Semiconductor makers such as Qualcomm (QCOM), Qorvo (QRVO) and Skyworks Solutions (SWKS) head the list of 5G stocks to watch. They make chips that are built into smartphones. Qualcomm plans to supply chips for Apple 5G iPhones.
"5G is likely to be a multiyear secular driver broadly across the semiconductor universe," Raymond James analyst Simon Leopold said in his note to clients.
However, some chip companies may not be trading at a proper buy point amid much hype over 5G stocks, according to IBD MarketSmith chart analysis. Except for Nvidia (NVDA), which is not a 5G stock, no chipmakers currently belong to the IBD 50 roster of fast growing companies or the IBD Leaderboard of premium stocks.
Qualcomm stock, Qorvo and Skyworks all have relative strength ratings ranging from 78 to 82 amid the coronavirus stock market correction. The best stocks tend to have relative Strength Ratings of 80 or better.
Other 5G stocks to watch include chipmakers Analog Devices (ADI), Marvell Technology Group (MRVL), Broadcom (AVGO) and Intel (INTC). Intel and Broadcom make devices for 5G network infrastructure.
Early 5G equipment orders boosted Xilinx (XLNX) in 2019. Xilinx makes programmable chips built into prototype network gear. However, Xilinx stock crashed Jan. 29 on a fourth-quarter revenue miss and weak guidance.
5G Wireless Targets Broadband To Homes
Xilinx cited soft orders from Chinese gear maker Huawei. San Jose, Calif.-based Xilinx also blamed a slower-than-expected 5G rollout across "multiple geographies."
There's much more to 5G wireless than providing faster data speeds to consumer devices. In time, the breadth of 5G stocks will expand.
Some telecom firms aim to provide fixed 5G broadband to homes and businesses or private network services to businesses. Verizon has said it does not expect meaningful revenue from 5G wireless broadband services to homes until 2021.
"There is consensus that whereas the 4G upgrade was for consumers, the opportunity for carriers in 5G largely resides in business use cases (private networks)," Morgan Stanley analyst Meta Marshall said in a note. "These business opportunities are still in development as carriers figure out how to monetize and build out the most efficient networks that can provide the capacity and low latency that makes incremental use cases possible."
The future of the 5G wireless technology lies in the Internet of Things, drones, remote health care and augmented reality phone apps.
5G Stocks: Big Internet Companies To Gain From Faster Speeds
"5G technologies will create compelling new business opportunities including augmented and virtual reality, autonomous driving, industrial IoT, smart cities, and more," said Canaccord Genuity analyst T. Michael Walkley said in a note.
RBC Capital analyst Mark Mahaney expects internet companies such as Amazon.com (GOOGL) Google, Netflix (NFLX) and Facebook (FB) to get a boost from faster 5G network speeds.
He also expects upside for mobile apps that gobble up the most data on phones, such as Spotify (SPOT), Facebook's Instagram, Snap (SNAP) and Pinterest (PINS).
Meanwhile, UBS also expects game makers Electronic Arts (EA), Activision Blizzard (ATVI) and Zynga (ZNGA) to get a boost from cloud-based gaming.
5G Networks: Higher Frequency Airwaves Require More Equipment
For many 5G stocks, the big opportunity lies in mobile network upgrades and the smartphone ecosystem. But, the long-term opportunity for many 5G stocks will be tied to new networks that blur the line between mobile and fixed-line infrastructure, analysts say.
5G networks utilize midband as well as higher frequency airwaves. As a result, they require more equipment, more cell towers and more fiber-optic wiring than previous generations.
Makers of fiber-optic technologies also are part of the 5G wireless network supply chain. 5G networks will require "small cell" radio antennas, radio access network equipment as well as links to cloud computing infrastructure.
The global 5G radio access market will jump to $21 billion in 2024, up from less than $4 billion in 2019, forecasts research firm Omdia.
Further, 5G also is a long-term opportunity for network gear makers Ericsson (ERIC) and Nokia (NOK).
However, some analysts say wireless carriers will shift spending from existing 4G networks to new 5G infrastructure. So overall capital spending may not increase as much as investors expect for 5G stocks.
Cellphone tower operators American Tower (AMT), Crown Castle (CCI) and SBA Communications (SBAC), also could get a 5G boost, analysts say.
5G Networks Require Fiber-Optic Technology
5G networks will connect to fiber-optic networks. That will provide reliability for emerging automotive, robotics and medical applications. Potential 5G stocks to buy include Corning (GLW), Ciena (CIEN), Acacia Communications (ACIA) and other fiber-optic players.
Crown Castle makes "small-cell" radio antennas for 5G services in urban areas. The small-cell antennas — hung on utility poles or building rooftops — will require fiber-optic connections to local hubs.
"The best way to invest in true 5G at this still early stage in our view is fiber/small cell service providers and others in the supply chain, although those building 5G handsets will benefit from a multiyear upgrade cycle as well," Cowen & Co. said in a report.
Keysight Technologies (KEYS) makes 5G network test gear. Keysight competes with Viavi Solutions (VIAV) and others in the 5G test gear market.
The Trump administration wants the U.S. to beat China in commercializing services with the technology. That's bullish for 5G stocks. The administration is holding airwave auctions and aims to ease local regulations to speed up deployment.
The U.S. government is pressuring countries not to buy gear from Huawei, China's biggest networking gear maker. That could benefit Ericsson, Cisco Systems (CSCO), Samsung and other network gear makers.
How 5G Wireless Will Change Cloud Computing
Mini data centers in neighborhoods will link to cloud-computing infrastructure. Nokia and Ericsson are developing 5G cloud gateways.
5G networks are expected to play a role in the expansion of "edge computing," an evolution of cloud computing.
Edge computing deploys data processing, storage and networking close to sensors and where other data originate, near the "edge" of the network. The goal is to process and analyze data locally in real time rather than send it to faraway data centers in the internet cloud.
With cloud software technology, pundits expect wireless firms to provide connections for drones and smart manufacturing. Dell Technologies (DELL), Hewlett Packard Enterprise (HPE), Nokia and others aim to capitalize on edge computing.
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