The coming transition from 4G to 5G cellular networks (the “G” standing for generation) is expected to facilitate the next phase of technological change and innovation. The move from 3G to 4G allowed Uber (UBER), Snapchat (SNAP) and online banking itself to emerge and change the culture. 5G could be 100 times faster than 4G; it’s expected to facilitate the next wave of technological advancements, including autonomous vehicles, virtual and augmented reality and the internet of things. Market intelligence firm IDC expects the market for 5G infrastructure to soar from $528 million in 2018 to $26 billion in 2022. So, here are the best 5G stocks to buy now.
This $29 billion chipmaker is one of the earliest companies to cash in on the next generation of wireless networking, and as such rightfully deserves a place as one of the best 5G stocks to buy. As infrastructure spending increases, Xilinx (XLNX) will be a direct beneficiary since its chips are used as components for much of this 5G build-out; revenue in XLNX’s communications segment soared 74% year over year in its most recent quarter. An impressive portfolio of radio frequency and system-on-a-chip technologies now can be used in all spectrum bands below 6 GHz, which will be important in helping to project 5G coverage over long distances.
Any list of so-called 5G stocks would be incomplete without Qualcomm (QCOM), another chipmaker that also happens to have an incredibly impressive portfolio of intellectual property related to 5G tech. A great settlement with Apple (AAPL) this year allows Qualcomm to supply chips for the iPhone for at least the next six years. Apple can now release a 5G-compatible iPhone sooner than previously expected, with Qualcomm licensing issues hammered out, benefitting both companies. Due to its widespread 5G intellectual property patents, royalties should be meaningful to shareholders for years to come. Trading at 14 times forward earnings and offering a 3.4% dividend, QCOM is fairly valued to boot.
Swedish communications equipment company Ericsson (ERIC) will be a key player in the global rollout of 5G technology, helping telecom companies upgrade their networks to the new higher speed networks. It also sells software and radio network hardware and recently struck a licensing agreement with high-growth Chinese smartphone maker Oppo. Recent national security concerns surrounding direct competitor Huawei’s technology should benefit Ericsson, as it picks up market share. First-quarter profits of 4.9 billion Swedish krona ($528 million) blew past consensus expectations for 2.8 billion krona in earnings, partly driven by U.S. adoption of 5G. In June, Ericsson forecast global 5G subscriptions to be 1.9 billion by 2024, a 27% increase from its November forecast.
Building new cell towers will be one big infrastructure expense required to achieve 5G connectivity. The last leg of 5G transmission, unlike 4G, will require antennas within several hundred yards of the connected device to ensure signal strength and speed; previously, towers could beam connectivity over much longer distances. This will require tens of thousands of smaller cell towers – the type Crown Castle (CCI) specializes in. CCI boasts 65,000 small cell nodes, and plans to build 20,000 more in 2020. Carriers mostly rent tower space rather than build them, so this growth will translate into vast recurring revenue streams in upcoming years. This 5G stock also pays a 3.3% dividend.
If staying power and dividends are traits you love in stocks, the major U.S. telecoms are for you, especially as 5G rolls around. And a major factor in any telecom’s success is its coverage area, which makes top 50 markets a valuable competitive benchmark. In top 50 markets, Verizon (VZ) dominates the ownership of key 5G spectrum bands, controlling 76% of the 28GHz band and 46% of the 39 GHz band – crucial high-frequency transmission areas core to 5G’s promise of higher data transfer rates. VZ is one of the best stocks to buy for 5G largely for its spectrum holdings and near-certain staying power; a 4.2% dividend doesn’t hurt either.
The transition from 4G to 5G won’t just require a buildout of physical infrastructure, it’ll also require new software systems. VMWare (VMW) offers technology that allows carriers to run multiple networks on the same hardware; it’s already secured deals with the likes of AT&T (T), Vodafone (VOD) and Ericsson. Revenues have risen from $6 billion in fiscal 2014 to $9 billion in fiscal 2019, while over the same period earnings per share have nearly tripled, soaring from $2.04 to $5.85. Shares have enjoyed a healthy run-up since early 2016 as the anticipation of the coming network transition has increased.
This consumer semiconductor products company has its hands in a number of high-growth, interrelated areas, including 5G, cloud, artificial intelligence, enterprise hardware and the automotive space, especially after its $6 billion 2018 Cavium acquisition. While Marvell (MRVL) is definitely a long-term play on 5G – the vast majority of additional revenue from the 5G rollout will come in 2020 and beyond – there could be significant upside should MRVL lock down design contracts with additional manufacturers. Its most recent major design win was with Samsung to provide chips to power LTE and 5G base stations, which are integral to improving connectivity. MRVL trades for 19 times forward earnings and pays a 1% dividend.
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