With the 5G technology getting ever more ready, it would be worth looking at which stock might be good to own in order to be ready to capture the benefits of its advent. Here are some ideas if you don't know anything about the 5G market.
Is 5G really a big deal?
Long story short: yes, it is. Some might think it’s really nothing but a media hype to convince you to acquire the new 5G iPhones that just came out. Wrong.
As InvestorPlace Markets analyst Luke Lango said it well: “going from 4G to 5G is like going from horses to cars, or from hot air balloons to airplanes. It’s a once-in-a-lifetime transition, which – much like the transition to cars and airplanes did – will open up a world of infinite possibilities.” Quite a statement isn’t it? More than just a marketing hype, it’s a global standard that will change the way we communicate.
The switch to 5G is imminent. This new technology promises smaller latency – time it takes for data to be uploaded and reach its destination –, massive network capacity and an overall better connection between all connected actors, which continuously increase in number.
5G technology is based on OFDM (Orthogonal frequency-division multiplexing), the same
technology used by 4G LTE, with a new interface call 5G NR air which allows a higher rate of delivery and efficacity. The bandwidth is much wider, which permits to deal with lower frequencies (sub-3 Ghz) and much higher outputs (24 Ghz and up), satisfying a greater range of networks. In other terms, it will outperform all network technologies: 5G is about 100 times faster than 4G.
Speed is not the only perk of 5G, it can also expand and open new wider areas of network in order to make possible the impressive connection of IoT (Internet of Things), cloud computing space and autonomous vehicles.
In terms of financial numbers, 5G is driving global growth. According to Qualcomm, 5G has a $13.2 trillion economic output, will create around 22.3 million new job openings and a $2.1 trillion GDP growth in the US and all of this by 2035.
The question is, then, what are the stocks that one should have a look at to capture this world-changing opportunity? Let’s dig into it !
We already talked about Nvidia in this article, so some readers might already know why we’re mentioning them in a 5G context. While it might seem counter-intuitive for others, the reason for it is quite simple: computing power. The thing is, 5G will supercharge AI, which soon won’t be able to satisfy computing power requirement. Nvidia offers some of the best processors on the market, which will be much needed to perform all cloud computing processes, for all task such as self-driving cars and other connected objects.
Financially speaking, the price of the stock is not cheap, with a price-to-earnings ratio coming at x85. However, their growing importance in this developing market makes for a decent investment to look at.
Qualcomm has used the same strategies for decades now: amass an important set of intellectual property, license it to users and make a lot of money. Bang, easy. Recently, they signed a deal with Apple making them their official chipset supplier for the coming years, a solid position to hold for the 5G revolution. Qualcomm keeps winning with its designs, which are accepted by more and more companies as the best on the markets. Their new six series is available to over two billions smartphones users around the globe: that’s some market share right here.
Their stock did really well this year, going from $61 in March to $110 today, and is expected to go even higher in the coming years.
We all thought that Nokia would fail, disappear and never come back again a few years ago. We might have been mistaken. Thanks to its Alcatel-Lucent acquisition in 2015, Nokia is one of the world’s largest mobile equipment operator with a decent 16% market share. While sales did fall during the pandemic, their earnings increased 21%. For comparison purposes: they had a negative cashflow of € 6 million this year, but this is a great progress when comparing it to the negative € 913 millions for the same quarter of the previous year.
Since March, the Nokia stock went up from $2.43 to $5, which might look like a small increase in absolute numbers, but could also be the first steps towards a larger progress
5G would not be of much use without the optic fiber. Well, even after having taken a big hit after the dot-com bubble – they used to be one of the hottest operators with shares fetching over $800 –, Ciena still has an important network infrastructure and remains a specialist in fiber optics and software-defined networking. Last but not least, Huawei is faced with more and more restrictions, which might leave more space in the industry for Ciena to step in.
Earnings per share went up 58% and their operating margins look brighter, which means that their financial health might be improving. We can safely expect them to leverage this turning point in world technology.
Verizon Wireless (VZ)
Verizon is a solid company by all means. They have a plan to increase 5G sell site by 500% and to introduce 5G in no less than 30 new cities before the end of the year. Adding this to a solid 4.5% dividend and a healthy balance sheet, and the company is looking promising. We must also mention that 70% of their activity revolves around wireless business, which puts 5G as a motor for success in the coming years.
The stock remains quite affordable, and with a decent dividend, it should stay afloat in the long term. We probably should not expect an immediate, tremendous growth before 5G becomes better implemented and the economy settles down, but according to the Motley Fool, it’s a safe investment.
Vuzix develops smart glasses with a technology focusing on minimizing the motion sickness one can experience with VR and AR. Although popular for gaming, the technology is also used in many industries such as manufacturing, training, remote sports and navigation. The solution also helps with the change to remote workforces, a trend pushing harder and harder these days. Add to this a solid intellectual property portfolio of over 157 patents (actual and pending), and it does have some arguments to convince investors.
While the stock has been quiet for a long time, it did go up recently, an increase that should hold in the long term as the service fits recent trends. Worth a look!
Yes, Apple. It seems that their new iPhone 12 launch was a decent success: it is now one of the most powerful and solid smartphone on the market, and it is surprisingly not that expensive – I mean, less that I personally expected, that’s for sure. The success of 5G will go hand in hand with this new hardware which is among the first mobile phone to support it. We should also note that Apple's revenue does not entirely depend on their smartphone anymore – if it was almost at 70% Q1 2018, it is now at 44% according to Statista –, which is a good thing in terms of risk.
The 4-for-1 recent stock split made the share more affordable to investors, right after the company saw its record revenue for a quarter: $59.7 billion. While maybe a little overvalued according to analysts from the Motley Fool, it should be a safe stock to have through the advent of 5G.
The big differences between 4G and 5G, in CNN Business
Here are five stocks to own for the 5G network buildout, in Market Watch
The 7 Best 5G Stocks to Buy Now, in Yahoo Finance
Everything you need to know about 5G, Qualcomm website
Is Verizon Stock a Buy?, in the Motley Fool
7 Best 5G Stocks for the Communication Revolution, in Kiplinger
Apple Stock at $120: Buy, Sell, or Hold?, in the Motley Fool