Turn on the TV right now and you’re likely to see 5G ads blanketing the airwaves. From Apple’s new 5G iPhone to AT&T, Verizon, and T-Mobile all touting nationwide 5G connectivity, the technology is breaking into the mainstream.
What’s so important about 5G?
- It promises speeds that could be up to 100 times faster than prior (4G) wireless technologies.
- It drops latency by up to ten-fold
- And delivers connection density by 10X.
In short, it’s the next generation of wireless technology. What does this all mean? You can have a lot more connected devices that are a lot faster. This could be a boon for everything from smartphones, to wireless equipment, to making trends like the Internet of things possible!
And investing before the 5G rollout is complete could position investors in front of incredible growth rates. 5G infrastructure spending was estimated to rise by 96% in 2020, and should soon become the majority of telecom spending.
So if you’re looking for 5G stocks, you’ve come to the right place! Below we’ve combed through the best opportunities in semiconductors, infrastructure equipment, and cellular towers. You’ll find some of the best 5G stocks to buy in 2021, and an overview of strategies you can use to stay one step ahead of emerging 5G technologies!
Best 5G Stocks to Buy in 2021
Here are the 7 best 5G stocks to watch right now:
- Qualcomm (Nasdaq: QCOM)
- American Tower (NYSE: AMT)
- NVIDIA (Nasdaq: NVDA)
- Corning (NYSE: GLW)
- Ciena (NYSE: CIEN)
- CEVA (Nasdaq: CEVA)
- Teradyne (NYSE: TER)
Qualcomm (Nasdaq: QCOM)
Investing in Qualcomm all comes down to a simple word: Patents.
The company is no stranger to the cellular wireless market and has been a dominant force in 3G and 4G technology for decades. Qualcomm’s cellular intellectual property (IP) fueled its growth for years. 5G IP won’t necessarily drive the same lofty profit margins of the company’s earlier days, but it’s still a catalyst for Qualcomm’s future growth.
The company makes its 5G money by selling chips to device makers and by making money from licensing its IP to other companies. The new cellular technology is very promising for Qualcomm because the company already has more than 110 5G agreements with smartphone makers and all major handset manufacturers are under license with the company.
In short, thanks to its patents and development work on 5G, Qualcomm gets a cut when 5G phones start flying off the shelves. That’s about to be lucrative, because the company estimates that 450 million to 550 million smartphones will be equipped with 5G in 2021, representing 150% growth from 2020. This gives Qualcomm a massive opportunity as device makers tap the company’s 5G technology.
American Tower (NYSE: AMT)
You might not know about American Tower, but the company’s business is a crucial part of wireless communications in the United States and around the world. If you’ve ever seen a cellular tower, then you’ve likely seen what American Tower does.
The company is structured as a real estate investment trust (REIT) and is the owner and operator of more than 181,000 wireless and broadcast towers. It leases the tower space out to telecommunications companies in years-long deals that provide consistent revenue for American Tower.
Think of it this way: American Tower allows you to become the landlord of 5G as the technology grows!
The company’s management believes it has a solid opportunity to benefit from 5G’s expansion and company CFO Rod Smith said recently that “Looking ahead, 5G deployment activity in the U.S. is poised to accelerate beginning in 2021.”
The company’s growth will come from the fact that its consolidated customer base is spending upwards of $60 billion per year to build out their networks and because mobile data consumption is growing 30% per year. All of which will spur more demand for leasing agreements in 2021, according to American Tower’s management.
NVIDIA (Nasdaq: NVDA)
NVIDIA designs graphics processing units (GPUs) that are primarily used for gaming but are increasingly being put to use to beef up artificial intelligence computing. The company’s chips are some of the best in the business and that’s why telecommunications companies are turning to NVIDIA to speed up their 5G services.
For example, Verizon (NYSE: VZ) is embedding NVIDIA GPUs throughout its network to make its data centers and cellular sites smarter and faster.
Aside from helping to accelerate 5G networks, NVIDIA’s GPUs will also help power other 5G-enabled services, like cloud-based gaming. Games that demand lots of graphics will benefit from NVIDIA’s high-powered GPUs and help usher in 5G cloud-based games with top-notch graphics. NVIDIA is also one of the best AI stocks right now!
Corning (NYSE: GLW)
Corning may be well-known for its glass products that are used in high-end devices like the new 5G iPhone, but it’s the company’s fiber optics products that will benefit from 5G’s growth.
Corning’s fiber is the wired part of wireless communications, sending high-speed internet signals to cellular sites. The company’s fiber has been instrumental in previous versions of wireless communication, but demand could be even higher with 5G. The company says a 5G-enabled city requires up to 100 times more fiber than a 4G-enabled one.
This represents a massive opportunity for Corning as the company helps telecoms lay more optical fiber to transition to a high-speed 5G world.
Ciena (NYSE: CIEN)
Perhaps one of the lesser-known companies in this lineup is Ciena, which supplies communications networking equipment and services to telecommunications companies. And just as demand for cellular towers and optical fiber increases as companies roll out 5G, the demand for equipment that sends out 5G signals will spike as well.
The company’s management said on a recent earnings call that bandwidth demand is growing 25% to 30% year-over-year and added that “we do not believe it will be possible for our customers to serve that level of demand for more than a few quarters without increasing capacity.”
With Ciena holding about 24% of the global optical network hardware market (excluding China) the company is in a great position to benefit from 5G’s ongoing rollout.
CEVA (Nasdaq: CEVA)
CEVA, like Qualcomm, operates off a royalty and licensing business model. The more companies integrate CEVA’s technology into their hardware, the more revenue CEVA brings in. The company is the smallest opportunity on this list with revenues of only about $100 million, but it has been steadily growing over the past five years, a time in which its stock roughly tripled.
Why could the next five years be even better? Well, as 5G provides further kindling to the growth of the Internet of Things (IoT), CEVA’s patent portfolio should be ideally positioned to benefit. For example, the company has developed its XC16 DSP (digital signal processor) for 5G base stations. Overall, base station revenue has gone from $3.6 million in 2016 to $15.9 million in the first nine months of 2020. With 5G still in its earliest innings, you can see how there’s still plenty of runway for CEVA’s 5G business ahead.
Teradyne (Nasdaq: TER)
Teradyne supplies semiconductor test equipment, which doesn’t exactly sound like the world’s most lucrative business. Yet, as the world goes increasingly digital, it leaves Teradyne as an often overlooked, but important player in many of technology’s most dynamic growth markets. In 2020 the company recorded $3.1 billion in revenue (growth of 36% vs. the prior year) and generated $784 million in profits. Best of all, Teradyne is reasonably valued at 27X earnings.
While growth rates will slow in the years to come, the company will have tailwinds from 5G. Its wireless testing group — which houses 5G revenue — saw sales grow 50% year-on-year in 2020 as 5G phones began rolling out. With 5G growth likely to stay at blistering rates in 2021, Teradyne’s wireless revenue should continue running red-hot.
Where to Find 5G Stocks
Now that you’ve seen a list of some of our top 5G stocks to buy today, it’s also important to understand some of the key 5G investing themes that could propel returns in 2021 and beyond.
Remember, many of the top performers across the stock market in 2020 were stocks that saw sales rise from coronavirus tailwinds (just think about the gains of e-commerce and cloud computing stocks that rose thanks to the rise of online shopping and work from home).
As 2021 will be a year that vaccine deployment moves pandemic-fueled growth trends to the background, Wall Street may look favorably at trends like 5G that could experience multi-year growth in a post-pandemic world.
5G chipmakers are companies like Qualcomm that are developing cellular chips that allow devices to connect to 5G networks, or they could be companies like NVIDIA that design computer chips that can be used in tandem with 5G services.
Demand for 5G chips will likely be high for years, but investors need to make sure that they invest in companies with a significant advantage over their peers. Chipmakers are often in fierce competition with each other, which can drive down the price of their chips.
To find the best 5G chipmakers, look for companies that have diverse chip revenues. For example, NVIDIA will likely benefit from the use of its GPUs that assist 5G services, but the company’s chips are also in high demand for gaming and artificial intelligence as well.
Beyond NVIDIA and Qualcomm, 5G chipmakers worth your research include Intel (Nasdaq: INTC) and Skyworks (Nasdaq: SWKS).
The first thing investors should know about most tower companies is that their business is structured as a real estate investment trust (REIT). This means that the companies must have three-fourths of their assets in real estate or similar assets and generate 75% of their income from those assets. Additionally, and most importantly for investors, REITs have to pay out at least 90% of their taxable income, and they usually do so through dividends.
Tower companies rent out physical tower space to broadcasting and telecom companies and typically ink years-long deals that provide long-term revenue.
Aside from renting out space on towers, telecoms also need smaller antennas placed closer to where customers are located to get the best 5G coverage and boost capacity. It’s estimated that the U.S. will go from about 100,000 small cells right now to 1 million in the coming years. That’s great news for American Tower, which also sells small-cell technology for 5G. Another popular tower company that might be worth a look is Crown Castle (NYSE: CCI).
While 5G is a wireless technology, it takes a lot of physical equipment and even wired connections to make it a reality. That’s where infrastructure companies come into play.
These companies create the small-cell boxes that are peppered across cities and the fiber-optic cables that bring the Internet signals to towers and small-cell boxes.
Spending on 5G network infrastructure still falls behind 4G/LTE spending, but it’s catching up quickly. Infrastructure spending on the new wireless technology nearly doubled in 2020 and is estimated to surpass 4G/LTE spending in 2022.
Not all infrastructure companies will benefit in the same way as 5G rolls out, so investors should look for companies that have a strong competitive advantage over their peers. Corning, for example, could benefit as a leader in fiber optics. Other popular infrastructure plays include Ericsson (Nasdaq: ERIC) and Nokia (NYSE: NOK).
Telecom companies like AT&T (NYSE: T), Verizon (NYSE: VZ), and T-Mobile (Nasdaq: TMUS) are investing heavily in 5G infrastructure. The challenge in investing in telecoms is that subscriber growth is limited as the vast majority of the population has an existing mobile plan. Companies like Verizon hope to use 5G to increase the number of subscribers on higher revenue unlimited data plans.
While telecom stocks will likely not provide the same level of growth as up-and-coming 5G chip companies, they do provide other benefits such as stable dividends. For example, Verizon currently sports a dividend yield of greater than 4%, a rarity in today’s market!
Another way to target the growth of 5G in the telecom industry is the emergence of 5G smartphones. Apple (Nasdaq: AAPL) has seen more than 70% growth in its share price in 2020 as analysts predict a large upgrade cycle to 5G iPhones. Beyond Apple, companies like Samsung could see growth as consumers upgrade to 5G phones.
Overall, 5G phones are projected to be 12% of all phone market share in 2020 and grow to 31% of all phones sold in 2021.
Trends benefiting from 5G
The ultra-fast and highly reliable networks created by 5G will enable new technologies and advance current ones. One such technology is self-driving cars.
While many new automobiles have some level of automation, like automatic brake assist or automatic steering that keeps you in your lane, 5G will eventually allow vehicles to communicate with each other and to cloud-based computers.
5G-enabled autonomous vehicles could tell one another that there’s an accident ahead, avoid each other during a potential collision, and off-load computer-intensive tasks to cloud-based artificially intelligent computers.
5G will also be used to connect industrial equipment, factories, and nearly any consumer product to the internet. Bringing formerly unconnected devices and things online is called the Internet of Things (IoT) and 5G bandwidth will allow more things to be connected.
5G’s low latency (the ability for devices and sensors to quickly communicate with cellular towers) will make the IoT even more efficient than it is now, which will enhance their ability to collect data and send it to the cloud to be analyzed.
Another tech trend that will be accelerated by 5G will be telemedicine. While telemedicine already exists, 5G will make it possible for people in more remote locations and in rural areas to have better online medical services. Reliable connections, improved video calling, and a more expansive cellular network will make telemedicine more prevalent.
Additionally, 5G-enabled medical devices and sensors could make it easier for doctors and healthcare professionals to track a patient’s health, know whether or not they’ve taken their medicine, and receive real-time alerts that could help save lives.
This is nowhere near an exhaustive list of tech trends that 5G will enable, nor a complete list of all 5G stocks. But investors can use this research as a springboard for diving further into 5G investments as they see the technology evolve.