Juniper Research estimates that demand for 5G smartphones is going to grow rapidly in the coming years as more consumers upgrade to the latest wireless standard to take advantage of faster speeds. The firm estimates that 5G smartphone revenue could more than triple to $337 billion in 2025 from this year's estimated $108 billion.
At the same time, 5G infrastructure investments will take off as more countries around the world get access to the new wireless standard. Mordor Intelligence forecasts that the 5G infrastructure market could clock a compound annual growth rate of 53% through 2026, hitting nearly $54 billion in revenue in five years. Investors can take advantage of these fast-growing tech trends by buying shares of Ciena (CIEN 0.58%) and Apple (AAPL +0.83%).
Let's look at the reasons why these companies are among the best 5G stocks to buy right now.
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1. Ciena: Its 5G network solutions are gaining traction
Ciena supplies optical transport, switching, and Ethernet solutions to telecom carriers and cloud service providers. Not surprisingly, its business has stepped on the gas as spending by telecom service providers has picked up the pace. Ciena recorded $988 million in revenue in the third quarter of fiscal 2021 that ended on July 31, a small increase of just 1.2% over the prior-year period. However, the company's guidance for the fourth quarter indicates that it is switching into a higher gear.
Ciena anticipates $1.02 billion in revenue this quarter, which would translate into a 23% increase over the prior-year period. The company credits the improving business environment for this sharp top-line increase, which is leading to an "unseasonably strong second half performance." More specifically, Ciena management says that spending by service providers is returning to pre-pandemic levels. Ciena customers are now prioritizing spending on new architectures and network deployments, which is allowing the company to monetize its design wins.
Ciena unveiled a host of 5G network solutions last year that enabled service providers to make the switch from 4G to 5G, and it appears that those solutions are gaining traction. For instance, Indian telecom service provider Airtel used Ciena's solutions to triple its optical fiber transport capacity in anticipation of the rollout of 5G networks there. More importantly, Ciena has landed more design wins in India that have added strength to the company's order book.
In fact, Ciena's order growth in Q3 outpaced its revenue growth. So it wouldn't be surprising to see the company sustain a fast pace of growth going forward, especially considering the secular 5G infrastructure opportunity it is sitting on.
Optical fiber is going to play a key role in the deployment of 5G networks across the globe thanks to the high-speed data transfer rates it is capable of delivering. As a result, optical fiber demand could jump to 1.5 million tons a year in 2030 as per a third-party estimate. That would be a huge jump, as the world's top two optical fiber consumers -- China and the U.S. -- consumed a combined 260,000 tons of optical fiber last year.
The secular growth opportunity indicates why Ciena's pace of growth is going to improve. Analysts expect the company's revenue to increase 8.3% in fiscal 2022, compared to just 2.1% growth in the current one. As the stock is trading at just 17.6 times trailing earnings, which is a discount to the S&P 500's multiple of 31, now looks like a good time to buy Ciena stock to take advantage of the booming 5G infrastructure market.
2. Apple: Building on 5G momentum begun last year
Apple is one of the best bets to ride the 5G smartphone wave. Apple reportedly holds a 29% share of the 5G smartphone market thanks to the success of last year's iPhone 12, according to Strategy Analytics, and it looks all set to build upon that momentum with the new iPhone 13 models. Strategy Analytics estimates that Apple's 5G smartphone share could increase to 40% with the iPhone 13, as the latest models are reportedly witnessing solid demand.
Cowen reports that Apple has increased its iPhone builds for the third and fourth quarters of 2021 by 21% compared to last year. The strong initial demand has led Apple to increase its third-quarter iPhone builds to 51 million units from the earlier estimate of 48 million units. Fourth-quarter iPhone builds are expected at 82 million units, compared to 78 million units earlier.
Production of the iPhone 13 models specifically is expected to land between 90 million and 95 million units this year, according to Cowen. That would be a 23% increase over the year-ago period.
So the iPhone 13 is all set to bolster the upgrade cycle that was kicked off by the iPhone 12 -- and this upgrade cycle won't be losing momentum anytime soon. That's because there are still millions of iPhone users that have yet to upgrade to a 5G phone. The iPhone 12 clocked 100 million units in sales by April this year, according to Counterpoint Research, and the iPhone 13 could clock an identical number in the next few months. Given that Apple has an installed base of more than 1 billion iPhone users, the company could enjoy strong iPhone sales numbers for years to come as more of them upgrade to a 5G device.
Credit Suisse estimates that Apple's iPhone sales could increase from 234 million units this year to 237 million units in 2022 and 249 million units in 2023. According to another estimate by Juniper Research, the iPhone could capture 40% of the smartphone market's revenue in 2022 and clock $200 billion in sales. That would be a huge jump from last year when Apple sold $138 billion worth of iPhones.
Apple's sales trajectory looks all set to keep pointing up thanks to the tremendous opportunity in the 5G smartphone market, as the iPhone is its largest source of revenue, producing nearly 49% of the top line last quarter. Not surprisingly, analysts expect Apple's earnings to grow at a faster annual pace of 19.6% over the next five years, compared to just 8.4% in the past five.
All of this makes Apple an enticing 5G stock to buy now given its attractive trailing earnings multiple of 28.7, which is a discount to the S&P 500. The forward earnings multiple of just 19 points toward robust bottom-line growth, a trend that's likely to continue for the next few years as more iPhone users make the switch to 5G.
