Tech stocks are surging after Election Day, building on what has already been a great year for the sector -- 5G stocks included. But there is plenty more room to run here. 5G mobile networks are still in the early innings of construction, and the companies responsible for building the infrastructure have a lot of work to do in the years ahead. Three of those companies that our Fool.com contributors think are a buy in November are Marvell Technology Group (MRVL 4.06%), American Tower (AMT -0.26%), and Micron Technology (MU -0.18%).
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Betting on the backbone of 5G
Nicholas Rossolillo (Marvell Technology Group): Marvell is historically a designer of data storage chips, but it's been busy in recent years. It acquired data processing unit company Cavium in 2018 and custom circuit designer Avera in 2019. It just announced another acquisition, this time of optical networking firm Inphi, for $10 billion.
Stitching all these pieces together, Marvell's portfolio of semiconductors is doubling down on 5G radios (the hardware that creates the wireless signal itself) -- as well as the back-end network needed to carry all of that information and the data centers housing the cloud-based services being accessed by all those phones and other mobile devices. Combined with Inphi, Marvell thinks its serviceable market is worth $17 billion this year and will expand to $23 billion by 2023.
Combined, Marvell and Inphi have hauled in just $3.6 billion in the last 12 months, so there's plenty of room here for the new Marvell to elbow its way into the 5G network and data center infrastructure arena -- not to mention benefit from a growing pie. Two-thirds of the deal will be funded with new Marvell stock to Inphi shareholders, and the balance will be funded with $4 billion in new debt. It will leave Marvell with roughly $5 billion in long-term debt and $750 million in cash once the merger is complete -- not exactly the squeaky-clean balance sheet I like to see -- but the company that emerges is expected to generate operating profit margins of at least 38% after realizing cost-savings synergies.
Longer term, I like this move. Other semiconductor and related hardware companies are scooping up peers to broaden their lineup -- creating a "more you buy, the more you save" proposition to customers. I like Marvell's focus on data, and getting that data moved quickly, as the 5G movement gets rolling in earnest. I'll be adding to my existing position this month.
5G infrastructure and more
Anders Bylund (American Tower): American Tower is the leading manager of cell towers and small cell base stations in North America and is a major player on the global stage. Forty-four percent of the company's third-quarter revenue was collected outside America. Billings and revenue are skyrocketing in American Tower's African and European markets, and Latin America would be another hot spot of impressive growth if the region weren't saddled with hyperinflation issues.
The 5G revolution won't get very far without access to towers and small cell installations. That's good news for American Tower and its shareholders. In particular, 5G networks can utilize so-called millimeter-wave radio frequencies that offer extremely high bandwidth and low latency, but at the cost of covering much smaller land areas per base station. Millimeter-wave installations should explode in big cities over the next couple of years, supported by 5G upgrades of equipment serving up longer-ranged signals at lower radio spectrum frequencies.
On top of the rapidly growing number of 5G stations, American Tower is expanding its business into adjacent markets that are opening up as 5G connections become widely available.
"We expect to have compelling opportunities to extend our core value proposition, into new related creative product and service offerings to expand our total addressable market," American Tower CEO Tom Bartlett said in October's third-quarter earnings call. "In the United States, as 5G deployments accelerate, we expect a proliferation of lower-latency applications and incremental cloud-based customer demand for application-level and network compute functions at the edge."
In other words, American Tower will sell edge computing services with direct access to the 5G wireless network. Keep an eye on this promising business expansion, which should boost American Tower's top-line revenue with a generous return on the hardware investment.
Today is a great time to start or grow an investment position in American Tower. The stock has barely moved in the last six months and currently trades more than 12% below July's all-time highs.
Micron's nifty new multichip package will turbocharge 5G handsets
Billy Duberstein (Micron Technology): In order to provide lightning-fast speeds, low latency, and huge data capacity, 5G phones will require lots and lots of memory and storage, no matter which phone vendor you choose. That's why Micron Technology, an arms supplier to basically every type of 5G phone, looks like a solid pick at the dawn of the 5G era.
Micron is one of only three major producers of dynamic random access memory (DRAM) chips in the world, supplying the basic horsepower of computing to all of the major smartphone vendors. But since 2018, the U.S.-China trade war caused a big negative downcycle for all memory and storage providers; then COVID-19 uncertainty hit the industry this year just as things looked like they had bottomed. The downturn has caused all leading memory suppliers to pull back on their capital expenditures for two years running, leading to lower supply growth.
Two years of decreasing capex just as 5G demand is starting to kick in seems like a very good setup for the supply-demand balance in memory and storage, especially DRAM. But even Micron's more competitive and less-profitable NAND flash business could improve as well, as SK Hynix recently announced it would be acquiring Intel's NAND flash business, bringing the six ex-China NAND players down to five.
Meanwhile, on its recent fourth-quarter conference call with analysts, CEO Sanjay Mehrotra said Micron had logged a record number of mobile phone design wins in the recent quarter, positioning the company for a surge in 5G adoption next year. Estimates say that about 200 million 5G phone units would be sold in 2020, rising to about 500 million units in 2021. 5G phones also contain about double the amount of DRAM and NAND as 4G phones, depending on the model.
In October, Micron announced that its latest multichip package (MCP) for mobile phones is now ready for mass production. Micron's MCP combines low-power DDR5 (LPDDR5) DRAM with NAND flash storage on a single chip. Micron says that combining both on one chip lowers power consumption by about 20% over previous DRAM and 40% over the previous NAND flash generation, with 20% faster download speeds and a 50% increase in bandwidth. MCP also takes up 55% less circuit board space, meaning Micron's solution will free up space for a bigger battery or more chips that 5G handset OEMs can utilize.
All in all, Micron looks like one of several semiconductor companies poised to benefit handsomely from the compute-intensive applications in the upcoming 5G era, especially after a two-year downturn in supply growth.
