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Top 5G Stocks for 2020
January 09 2020 - Best 5G Stocks? Apple iPhone Expectations Rise But Telecom Boost Unclear By Investors Business Daily
Heading into 2020, Apple stock sparkled amid expectations that consumers will rush to buy 5G iPhones later this year. While Apple is one of the most popular 5G stocks, shares in the U.S. telecom companies actually building 5G wireless networks are not yet reflecting that added value.
That's because it's unclear whether 5G wireless networks will reignite revenue growth for top providers Verizon Communications (VZ), AT&T (T), T-Mobile US (TMUS) and Sprint (S). In addition, revenue generating 5G-specific consumer applications have yet to emerge.
It took years for some new 5G business-related revenue streams to develop. In the meantime, wireless competition could erupt into a 5G advertising war targeting high-spending consumers, analysts say.
Apple's (AAPL) track record: Late in 2012, Apple introduced the iPhone 5. The new mobile phone ran on fourth-generation wireless networks. IPhone sales boomed 46% to 136 million units that year. Expectations for a repeat iPhone supercycle starting in late 2020 may be on solid ground. But brace yourself — 5G iPhone price tags are likely to run upward from an estimated $1,200.
5G Stocks: Internet, Gaming Companies To Watch
Apple stock isn't the only company to piggyback on the network investments of telecom companies. Some internet companies also could be viewed as potential 5G stocks to buy.
"It's hard not to think of an internet company that won't benefit from 5G," said RBC Capital analyst Mark Mahaney in a 2020 outlook report. He expects a boost for Amazon.com (AMZN), Alphabet's (GOOGL) Google, Netflix (NFLX), Facebook (FB) and others.
He also expects upside for mobile apps that gobble up the most data usage on phones. Those include Spotify (SPOT), Facebook's Instagram, Snap (SNAP) and Pinterest (PINS).
"Faster data speeds, lower latency and increased connectivity should benefit companies with concentrated offerings in mobile video, gaming and augmented/virtual reality in the shorter term," added Mahaney.
UBS also expects game makers Electronic Arts (EA), Activision Blizzard (ATVI) and Zynga (ZNGA) to get a boost from cloud-based gaming.
A central challenge for wireless network vendors is finding ways to capture, rather than give away, the value added by their massive 5G investments, says Morgan Stanley analyst Meta Marshall. The introduction of speedy 4G wireless internet connections in 2012 allowed software developers to create apps that unleashed waves of new mobile audiences on video and social media platforms. Mobile apps such as "Pokemon Go" flourished on 4G networks.
In an October report, Marshall said U.S. wireless providers aim to avoid "repeating the mistakes of 4G, where monetization of carrier investments was largely done by application vendors."
5G Networks: Will Improved Latency Create New Apps?
Another industry segment that cashed in on 4G networks' leveraging of real-time communications and mapping technologies is ride-hailing firms like Uber Technologies (UBER) and Lyft (LYFT).
5G networks will provide even more precise location-finding capabilities. They'll be able to pinpoint a device/user's location within a few square centimeters vs. 4G networks' few square meters. Some new apps may arise to take advantage of that.
New 5G apps, as well as 5G company stocks, could also emerge based on virtual/augmented reality, cloud gaming, smart homes, the industrial Internet of Things or other areas.
"Networks are the foundation on which innovation happens. 5G is no different than 4G in that regard," Roger Entner, head of Recon Analytics, told IBD, adding that 5G will have even more impact on innovation than 4G did.
As more radio spectrum is freed up, estimates call for 5G networks to provide 20 times, and eventually 100 times, faster download speeds than 4G.
5G networks also will improve latency, the lag time it takes networks to respond. That's crucial for applications such as autonomous driving, remote telemedicine and factory automation. 5G networks reduce latency to a few milliseconds from lags of 50 to several hundred milliseconds.
It may not be until 2021 that 5G consumer services lift wireless industry revenue growth significantly, analysts say. Investors would normally expect 5G mobile to be marketed as a premium service. Verizon and T-Mobile, though, aren't charging 5G smartphone users higher fees for now.
UBS analyst John Hodulik says that, in the near term, wireless firms may get the most benefit from customers upgrading to unlimited monthly data plans that cost $60 to $70 per line. Or carriers could get a revenue boost from selling consumers insurance plans for pricey 5G iPhones or Android devices.
5G Wireless: Will Telecom Advertising War Erupt?
From 2011 to 2014, Verizon gained market share with a marketing campaign claiming it had the best 4G network. AT&T is determined not to let that happen with 5G.
"We expect all of the carriers to heavily market their new 5G capabilities after a noticeable slowdown in marketing activity seen in recent quarters," Hodulik said in a report. "We expect the marketing of 5G coverage plans to be front and center in 2020."
AT&T and T-Mobile have committed to having nationwide 5G mobile coverage by late 2020.
"5G really is now the new front line in an industrywide public relations war," Bank of America analyst David Barden said in his recent note to clients.
Some observers, though, say expectations for both 5G stocks and technologies may be too high. It's probably true that 5G networks will make movie downloads faster and streaming higher-resolution content faster. But no 5G "killer apps" have emerged that would compel consumers to upgrade.
Craig Moffett, analyst at MoffettNathanson, says investors should beware of 5G hype. "2020 will be another year where the hype around 5G far outstrips the reality," he said in an email.
"The value proposition for upgrading to a 5G phone simply won't be good enough by September to drive a big upgrade cycle this year. My guess is we're still at least another year away."
5G Networks: More Mid-Band Spectrum Needed
"5G is going to be great especially as a cost saver," said Susquehanna Financial analyst Mehdi Hosseini in a report. He estimates that while 4G networks move data at a cost of $1 per gigabyte, that will drop to between 30 cents to 40 cents with 5G networks that use mid-band spectrum.
Some pundits consider 5G networks the bedrock of the Fourth Industrial Revolution. But the U.S. still needs to free up more radio spectrum for new applications to emerge, analysts say.
Early testing has demonstrated that 5G phones are capable of gigabit speeds in the real world. However, speeds vary by carrier and by city. Many non-smartphone apps touted for 5G networks require mid-band airwaves — those between 1 gigahertz and 6 GHz frequencies — in urban settings.
The U.S. government plans to auction off mid-band spectrum called the Citizens Broadband Radio Services, or CBRS, band in late June of this year. The airwaves reside at the 3.5-GHz frequency band, smack in the middle of the needed frequency range.
Furthermore, in late 2020 or 2021, the government will auction off portions of mid-band airwaves known as C-Band. They reside in the 3.7 to 3.9 GHz frequency bands.
5G Stocks: Telecom Firms Eye Business-To-Business Market
Verizon and AT&T have bought licenses for high frequency — also called millimeter wave — spectrum. The "mmWave" spectrum blocks are located in 28 gigahertz, 37 to 39 GHz and other high frequency bands.
High-band spectrum waves, though, mainly travel just short distances. As a result, indoor transmission, or through dense urban environments, is weak.
Higher frequency 5G networks demand more cell towers, radio access network (RAN) equipment and fiber-optic wiring than 4G did.
While 4G was mostly about mobile broadband for the masses, with 5G wireless, firms are looking beyond the consumer.
They aim to provide reliable, private 5G connections for business services. That strategy involves "network splicing" — prioritizing traffic and charging different prices depending on speed and reliability.
One question is whether 5G networks using shared, unlicensed spectrum will replace enterprise Wi-Fi networks for new business applications.
In addition, 5G networks will use new "virtualization" software to provide on-demand bandwidth for business-to-business services.
"As operators shift the focus towards optimizing the network to address new opportunities beyond today's smartphone applications, it will also be important to upgrade the 5G core network, among other things," said Dell'Oro analyst Stefan Pongratz in an email.
5G Stocks: Chipmakers Expect Smartphone Sales Surge
For many 5G stocks, the big opportunity lies in mobile network upgrades and the smartphone ecosystem. Electronic chipmakers will profit from devices built into 5G iPhones and Android devices.
Qualcomm (QCOM) in November said it expects in a range of 175 million to 225 million 5G phones to ship in 2020. China is expected to account for most 5G phone sales this year. Qualcomm also announced during the past week that it will provide the processor for the first 5G wireless-enabled PCs, made by China's Lenovo (LNVGY).
However, 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 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.
5G Networks: New Applications In Edge Computing?
AT&T and Verizon aim to provide private, 5G bandwidth for enterprise edge applications.
"We'll see how much wireless operators will be able to get involved in things like edge computing, which will revolutionize how we will use devices," Recon Analytics' Entner said.
New business apps could emerge in edge computing or elsewhere.
"Going into 2020 we are at a wireless crossroads ahead of 5G, where, once again, advanced networks are being constructed and the applications that will ride on them are still to come," said Raymond James analyst Frank Louthan in a December report. "A life-changing app and industry, like ride-sharing (Uber, Lyft), could not have existed without 4G. We will no doubt look back at 5G spawning similar applications and businesses that we don't yet foresee."
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