The next generation in cellular wireless technology, called 5G, is already available on many telecom networks -- and it's got some huge advantages over 4G. The speeds for 5G can be up 100 times faster than 4G, it has lower latency (meaning it travels faster between towers and devices), and it has better capacity, allowing for more connected devices.
With 5G already rolling out across many markets, investors may be wondering which companies could potentially benefit the most from this emerging tech. Here's why NVIDIA (NVDA -10.01%), Qualcomm (QCOM -2.36%), and Apple (AAPL -1.22%) are top 5G stocks.
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1. NVIDIA: 5G tech needs chips, too
NVIDIA is well known for making some of the best graphics processing units (GPUs) for gaming, but the company's chips are being used to accelerate 5G infrastructure as well. 5G users consume nearly three times more data than 4G users do, causing 5G data centers to process a lot more information than ever before.
With NVIDIA's GPUs, telecoms can handle the extra load efficiently. Verizon is already using some NVIDIA processors to boost its 5G network data centers, and as 5G grows, the need for more chips could rise along with it.
One great aspect about investing in NVIDIA is that the company isn't a 5G pure play. It has plenty of other avenues to make money from, and gaming and its broader data center segments are also fueling growth.
NVIDIA's total sales grew 61% in the most recent quarter and diluted earnings per share soared 51%. NVIDIA's stock has fallen about 8% over the past month, creating a good buying opportunity for investors looking to take a new angle on 5G investments.
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2. Qualcomm: Intellectual property at the foundation of 5G
Qualcomm's patents in the 3G and 4G market fueled the company's growth for many years, and the company is poised to benefit from 5G patents as well. While it may not be able to earn the same margins it did from its previous cellular technology patents, 5G still a big opportunity for Qualcomm.
The company has already set up 110 agreements with smartphone makers and all major handset manufacturers for 5G licenses. This means that as 5G mobile devices become more mainstream, Qualcomm will be able to earn licensing revenue from those devices.
That's important because Qualcomm thinks 450 million to 550 million 5G devices will ship this year, more than double the amount in 2020.
In Qualcomm's fiscal first-quarter results (released Feb. 3) sales spiked 61% and diluted earnings per share skyrocketed 161% from the year-ago period. You would think that strong performance would have lifted up Qualcomm's stock, but the recent slide in the broader tech market has pushed the tech company's share price down about 5% over the past month.
With Qualcomm poised to benefit from the ongoing shift to 5G, and its recent share-price dip, now could be a great time to buy this tech stock.
Image source: Getty Images.
3. Apple: The 5G device play
Apple may not rely on its iPhones to be the cash cow they once were, but that doesn't mean that the company isn't a good way to bet on the 5G market.
Apple launched its first 5G-enabled iPhones (it has three in the iPhone 12 lineup) late last year, and since then, the company has emerged as a dominant 5G player. The new device helped iPhone revenue pop 17% in its fiscal first quarter (reported on Jan. 27), and Apple is quickly taking over the 5G phone market.
Some estimates show that Apple could take 35% of the 5G phone market by the end of this year.
Why does this matter for Apple? First, the company generated almost $66 billion in phone revenue in its fiscal first quarter (out of $111 billion in sales). So the iPhone is still very important to Apple's top line.
But the iPhone is also important to Apple because it helps drive growth in the company's growing services segment (which includes Apple Music, Apple News+, the App Store, etc.). The more iPhones Apple sells, the more it can sell services through that device and keep users tied to its vast ecosystem. Apple's services segment grew 24% to $15.8 billion in the fiscal first quarter.
With Apple just getting started in the 5G space, the company will likely continue to see an uptick in iPhone sales as consumers upgrade their 4G iPhones to the new cellular standard. As they do, Apple will continue to hook new and existing customers into its ecosystem and sell them even more services as it does so.
Keep this in mind
While 5G offers a lot of promise for investors, it's wise to find companies in this space that aren't betting solely on 5G. Some tech companies suffer from cyclical patterns, where demand for new tech spikes but then tapers off as it becomes more prevalent.
That's why I've picked Qualcomm, NVIDIA, and Apple. Each one of these tech giants has other areas for potential growth besides 5G and could prove to be great long-term investments even if 5G grows slower than expected.
