Marketing campaigns have started touting the nation-spanning launch of 5G mobile networks, promising faster download speeds and better reliability. But there's one catch: You'll need a new phone that can handle the new 5G signal.

This means a new consumer device upgrade cycle may be coming. Paired with the continuous infrastructure improvements network operators will need to make in support of their 5G services, companies involved in the manufacture of hardware could benefit the most. Three worth a look in the month of September are Skyworks Solutions (SWKS 2.17%), Applied Optoelectronics (AAOI 1.62%), and Micron Technology (MU 2.55%)

A city skyline with illustrated bubbles of WiFi, mobile network, and 5G icons hovering above it.

Image source: Getty Images.

Getting connected to 5G

Nicholas Rossolillo (Skyworks Solutions): As I write this, semiconductor stocks are finally taking a breather after a relentless rally off of March lows. Many chip companies have had surging demand as organizations scramble to update their equipment to deal with social distancing and the ensuing remote work. Skyworks is not one of those companies. Its revenue through the first three quarters of its current fiscal year 2020 remains down 6% from a year ago.  

However, Skyworks is slowly clawing its way back to growth mode in spite of 2020 being a not-so-great year for smartphone sales (blame the pandemic). But the connectivity chipmaker could stand to gain quite a bit this autumn. Roughly half of its revenue is derived from Apple (AAPL 1.30%) -- it supplies the iPhone with radio chips that connect the device to a wireless network. Whether it's a new 5G-enabled iPhone or one still using "old" 4G technology, Skyworks could wind up selling a lot of components as consumers start to resume purchasing devices and upgrading old phones.  

Besides a coming wave of growth from 5G, Skyworks also makes WiFi and connectivity equipment for a myriad of devices outside of the smartphone market. This could be a solid place to be in the decade ahead, as seemingly everything these days gets an internet connection-enabling chip embedded in it -- from cars to smart home devices to industrial equipment. To help its cause, Skyworks boasts a squeaky clean balance sheet with $1.16 billion in cash and equivalents and zero debt. It also pays a decent dividend, currently yielding 1.3%, with plenty of room to raise the payout over time.

After the recent pullback, Skyworks Solutions stock trades for 24 times trailing 12-month free cash flow. It's a premium price tag that assumes this company will return to growth over the next year, but not an unreasonable amount to pay if the smartphone market does indeed make a comeback -- boosted by new demand for 5G phones. Now looks like a good time to make a buy for the long haul.

Data centers and wireless towers need fiber-optic connectors

Anders Bylund (Applied Optoelectronics): This maker of fiber-optic networking product might look like a strange play on the 5G market, but Applied Optoelectronics is actually tightly related to the wireless industry. High-speed wireless networks need to be connected to the global internet through even faster and ultra-reliable links, and optical networks are perfect for that job. Rising use of mobile networks also results in heavy traffic to, from, and within the data centers that serve up content to mobile devices, giving Applied Optoelectronics yet another point of entry.

The coronavirus pandemic limited this company's incoming orders in the first half of 2020, and its earnings reports have been mixed. Therefore, the stock is trading approximately 30% below its 52-week highs and 2% lower from a year-to-date perspective. Management sees brighter days ahead, though.

"We are encouraged by the increased data center demand from a diverse set of customers and improving 5G-related activity that began earlier this year and will continue into Q3," CEO Thompson Lin said on last month's second-quarter earnings call. "During the second quarter, we saw significant improvement in our telecom and cable sectors. Revenue in our telecom segment more than doubled sequentially and outpaced our cable TV business, driven by increased 5G activity."

The next few quarters might be a bit bumpy due to the unpredictable pace of 5G installations during a pandemic, but the long-term promise of solid growth is not in doubt. Applied Optoelectronics is a solid buy right now, and the 5G revolution is an important ingredient of this company's enticing growth prospects.

5G will greatly increase demand for DRAM and NAND

Billy Duberstein (Micron Technology): The 5G era is just getting started, which should mean bigger and better demand for memory and storage demand for the foreseeable future. Micron Technology is one of the best-positioned stocks to capitalize on that opportunity, with a best-in-class portfolio across DRAM memory, NAND flash storage, and a new type of "fast storage" called 3D Xpoint.

DRAM is especially important for Micron, as it gets about two-thirds of its revenue from that product and an even higher amount of gross profits. Fortunately, the DRAM industry only has three large players as of today, and 5G phones will require much more DRAM than 4G phones. Even low-end 5G phones, which is the largest part of the phone market, will require twice the amount of DRAM and NAND per unit. So even without much unit growth, mobile DRAM demand is set to double in the 5G era.

But it's not just phone memory that will take off from 5G. Faster 5G networks will create a "virtuous cycle" whereby more computing power will also be needed in data centers, edge computing clusters, "smart" vehicles, and IoT devices to interact with 5G networks, creating more memory demand for lots and lots of applications.

5G will also go hand-in-hand with artificial intelligence. Up until now, Micron hadn't had an AI-specific high-bandwidth memory (HBM) product, but fortunately, the company recently introduced its first HBM. Going forward, I would expect this product to lead to incremental strength for Micron that tech investors have realized in AI-focused chip companies such as NVIDIA (NVDA 1.44%) and Advanced Micro Devices (AMD -0.18%).

Even with these long-term tailwinds, investors can pick up Micron stock for a bargain price in September, at just 1.3 times book value. The stock has pulled back a little bit recently, as investors worry this year's strong first-half demand has pulled forward demand from the second half of the year, which could lead to a quarterly downturn. In addition, new U.S. trade rules targeting Chinese tech giant Huawei may mean Micron will have to stop shipping products to Huawei starting Sept. 14, and Huawei accounted for almost 10% of sales in the recent quarter.

While these may both be headwinds for the current quarter, it should be noted that Micron also sells a lot of product to Huawei competitor Xiaomi (XIACY), who could potentially take 5G market share from Huawei if Huawei is forced to use inferior components. In fact, Xiaomi and Micron teamed up in a February press release touting Micron's industry-leading LPDDR5 DRAM memory inside Xiaomi's new flagship 5G phone, the Mi 10.

Basically, the COVID-19 and trade war era has caused a lot of volatility around memory supply and demand, but the long-term picture for Micron still looks rosy as the 5G era spurs accelerated memory demand over the next 5 to 10 years, starting now.