Top 5G Technology Stocks To Invest In
September 25 2019 - 5G Stocks To Invest In Span Apple, Verizon, Chipmakers, Tower Firms By Investors Business Daily
What 5G stocks will get an early boost? Look for management commentary on company earnings calls regarding traction. Telecom companies are in the early stages of building out 5G wireless networks.
Some 5G stocks are already profiting as U.S. wireless firms like Verizon Communications (VZ) and AT&T (T) conduct field trials. Japan, South Korea and China also are forging ahead in the technology.
Apple (AAPL) is expected to roll out 5G iPhones in late 2020.
Apple iPhone sales will get a bigger-than-expected boost in 2021 as wireless firms step up 5G marketing, Jefferies analyst Kyle McNealy said in a recent note to clients.
"5G will be big — the marketing machines at every wireless operator will be driving a 5G message with consumers," he wrote. McNealy estimates Apple will ship 208 million iPhones in 2021, above analyst estimates for 190 million.
Apple Stock: 5G To Spur IPhone Upgrades
"We think the Street underestimates the benefit Apple gets from this heading into the 5G cycle."
Apple stock is trading just below an entry point. Apple stock has jumped onto the IBD Leaderboard, a roster of premium stocks to buy.
Goldman Sachs, though, is cautious on consumer demand.
"U.S. wireless carriers are accelerating the pace of their 5G deployments and expect to have mostly national coverage by mid-2020, as 5G enabled handsets become more widely available," Goldman Sachs analyst Brett Feldman said in his recent report to clients. "While the timelines of 5G deployments are becoming increasingly clear, the use cases for the consumer remain conceptual."
Semiconductor makers head the list of 5G stocks to watch. Makers of fiber-optic technologies also are part of the 5G wireless network supply chain.
5G networks will require "small cell" radio antennas as well as links to cloud computing infrastructure. In time, the breadth of 5G stocks will expand. The future of the technology lies in the Internet of Things, autonomous vehicles, drones, remote health care and augmented reality phone apps.
Semiconductor Makers Are 'Arms Dealers' In Global 5G Race
The market for 5G semiconductors will boom to nearly $19 billion by 2022, up from $593 million last year, Bank of America/Merrill Lynch said in a March report.
"A wide range of semiconductor companies will be involved in 5G rollouts," the report said. "In terms of timing, first to be involved will include companies exposed to test/measurement and front-haul including Xilinx (XLNX), Analog Devices (ADI), Marvell Technology Group (MRVL), and Infineon."
Xilinx on July 24, however, reported disappointing June quarter earnings as a U.S. government ban on 5G chip shipments to China's Huawei Technologies impacted results. Xilinx removed guidance for fiscal 2020 due to uncertainty over whether 5G shipments to Huawei will resume.
In addition, infrastructure chip vendors such as Broadcom (AVGO) and Intel (INTC) will see upside as 5G networks are built out, says the Bank of America report. When 5G smartphones and mobile devices hit the market, among the semiconductor vendors to gain will be Qualcomm (QCOM), Broadcom, Skyworks Solutions (SWKS), and Qorvo (QRVO).
Apple and Qualcomm on April 16 announced a deal to dismiss all legal proceedings between the two companies worldwide. Qualcomm plans to supply chips for Apple 5G iPhones rolled out in 2020.
Qualcomm and Skyworks are best positioned for 5G while many chip makers should get a boost," said Raymond James Chris Caso in a Sept. 19 report.
"We expect that the rising content tide and improvements in handset mix upon the transition to 5G phones is likely to lift all boats," he said.
Research firm Gartner sees more than 77 million 5G phones sold worldwide in 2020, 230 million units in 2021 and 840 million in 2023. By 2022, Cisco Systems (CSCO) estimates that 12% of all global mobile traffic will come from 5G connections.
5G Network Trials Pick Up Momentum
Xilinx makes programmable chips built into prototype network gear. While Xilinx's 5G-related communications unit revenue has boomed, though it has lost business from Chinese gear maker Huawei.
Keysight Technologies (KEYS) makes 5G network test gear. The company on Aug. 21 reported better-than-expected second quarter earnings as 5G-related sales drove record revenue for its communications division.
Keysight, though, has dropped out of the IBD 50 roster of fast-growing companies. Keysight competes with Viavi Solutions (VIAV) in the 5G test gear market.
Further, 5G also is a long-run opportunity for network gear makers Ericsson (ERIC) and Nokia (NOK). Nokia, on its Jan. 30 earnings call, downplayed expectations for 2019.
The networks will use high-frequency radio waves and advanced radio antennas.
American Tower (AMT), a cell-phone tower operator, is a "global 5G infrastructure play," Bank of America said in an August report. Two other tower operators, Crown Castle (CCI) and SBA Communications (SBAC), also should get a 5G boost, analysts say.
But there's more to 5G stocks than wireless infrastructure.
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. Crown Castle has invested in cell-tower fiber network hookups.
"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 May report.
However, Morgan Stanley says 5G deployment worldwide is going a bit slower than expected.
"With 5G network buildouts still in early days, we continue to be conservative with equipment expectations," said the Morgan Stanley report. "Spend has been slower to move from network core to edge, with fiber, optical growth still larger than radio/antenna. A transition (should) take place late this year." Morgan Stanley favors Corning as a 5G stock.
5G Stocks, China And Politics
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 should benefit Ericsson, Cisco, Samsung and other network gear makers.
Verizon, AT&T Target 5G Wireless
Verizon and AT&T are taking different routes to 5G as a moneymaker. New York-based Verizon is testing 5G broadband services to homes. It plans to expand deployment in late 2019.
However, it's uncertain whether Verizon can earn an acceptable return on capital from its 5G fixed wireless broadband service, MoffettNathanson analyst Craig Moffett says. Verizon's strategy relies too much on high-frequency airwaves, according to Moffett.
Verizon has said it does not expect meaningful revenue from 5G wireless broadband services to homes until 2021.
On the other hand, AT&T sees a quicker return on business services. Neither Verizon nor AT&T is expected to capture significant revenue from the technology in 2019. If regulators approve the merger of T-Mobile US (TMUS) and Sprint (S), those two carriers are expected to make a bigger push.
Cable TV Companies And 5G Networks
If Verizon announces a big expansion of its 5G broadband services to homes, look for cable stocks like Comcast (CMCSA) and Charter Communications (CHTR) to take a hit. Even so, a significant threat may not materialize until late 2021, analysts say. And, cable firms are ramping up faster landline broadband with the help of Intel.
5G And Cloud Computing
Mini data centers in neighborhoods will link to cloud-computing infrastructure. Nokia and Ericsson are developing 5G cloud gateways. 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 get on related edge computing.
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