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This Tech Giant Could Be a Hot 5G Pick

By Harsh Chauhan - Jul 8, 2020 at 7:00AM

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The roll-out of 5G networks could add more fuel to this top tech stock.

The COVID-19 pandemic may have slowed down the rollout of 5G (fifth generation) wireless networks, but the long-term opportunity remains intact. A third-party report says that 5G infrastructure investments could jump to $58 billion by 2026, compared to $10 billion last year, which means that investors could win big from this space if they make the right choices.

There are several stocks that could take advantage of this huge end-market opportunity and enrich investors in the long run. In this piece, we are going to take a closer look at one such stock -- NVIDIA (NVDA 5.92%) -- that could win from the 5G revolution.

Person holding a 5G smartphone.

Image source: Getty Images.

5G could be a new catalyst for NVIDIA

NVIDIA is known for specializing in graphics cards that help accelerate computer games and data centers. The chipmaker is enjoying terrific gains in both these verticals, but don't be surprised to see the deployment of 5G networks throw another catalyst into the mix for NVIDIA.

The good part is that NVIDIA is already tapping this space with Aerial, an application framework that allows telecom carriers to build and deploy 5G virtual radio access networks (vRAN) accelerated with the help of GPUs (graphics processing units). NVIDIA believes that a software-defined, virtual RAN architecture will play a critical role in 5G adoption, as it will be able to deliver "real-time, high-bandwidth, low-latency access."

That's because vRAN runs on virtual machines. Applications that are running on one virtual machine can be transferred to another one in a seamless manner, as they are not anchored to specific hardware as they are in conventional setups. As a result, vRAN can help 5G networks adapt to the needs of users based on their requirements and regulate the usage of resources accordingly.

This property of virtual RANs helps them reduce operating costs for telecom operators. According to a report by Transparency Market Research, vRAN can reduce operating expenses to the tune of 30% to 40% compared to conventional networks. What's more, deploying vRANs can reduce capital expenses by 40% to 60% -- they require smaller real estate footprints to set up, and lower hardware investments as the baseband units are virtualized.

Given all these advantages and the efficiency they are expected to bring to 5G, vRAN deployments are expected to gain huge traction in the coming quarters. A third-party report pegs the growth of vRAN networks at a compound annual growth rate of 128% through 2024, with revenue from this market hitting $28.5 billion at the end of the forecast period. The global vRAN market pulled in just $200 million in revenue last year, according to the report, which indicates that NVIDIA has massive room for growth in this space.

How is NVIDIA positioned right now?

Telecom players such as SoftBank, KDDI, Ericsson, and Mavenir are partnering with NVIDIA for its Aerial vRAN offering. Beyond this, NVIDIA hasn't revealed any further details about how its vRAN partnerships are progressing, which isn't surprising as 5G networks are still in the early phases of being rolled out.

Transparency Market Research adds that virtual RANs could gain traction after 5G deployments are done, as the existence of macro cell towers across the globe could hinder their implementation. There are some other logistical challenges as well: Setting up vRANs will require moving baseband processors to data centers from cell towers, and to do that, expensive optical fiber lines will have to be laid to reduce latency and increase bandwidth.

So the vRAN market is currently in a nascent phase, and it may take some time to gain enough traction to move the needle significantly for NVIDIA. But when the market gains critical mass, NVIDIA could turn out to be a beneficiary -- it is partnering with the key players that are sitting on a massive end-market opportunity.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. The Motley Fool has a disclosure policy.

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