Smartphones and the mobile revolution more broadly, as we here at the Fool have called it in the past, have changed the world and created sprawling, multi-billion dollar businesses in only a few years.
And as should come as no surprise, smartphone stocks have become increasingly popular among tech investors as well. The global smartphone market is a sprawling and hugely complex space, one that's likely more fitting for a textbook rather than an article. So keeping that in mind, let's take a quick look at the 5 best stocks to invest in the smartphone space today.
Apple (NASDAQ: AAPL)
Unless you've been living under a rock for the better part of the last decade, Apple's appearance at the top of this list should come as no surprise. However, the company's roadmap for its unparalleled success has been a difficult one for other smartphone manufacturers to replicate, and that certainly bodes well for Apple's long-term outlook.
Apple leverages its leading industrial design, insanely popular brand, inventive hardware engineering, and glue-like software ecosystem to create one of the most powerful business models in business today. Billionaire investor Carl Icahn has likened Apple's iPhone business to an annuity in which consumers consistently buy Apple's high-margin devices roughly every two years. And whether you admire or detest Icahn, there's certainly some truth to the statement. There's a reason that Apple, in a market in which most smartphone OEMs struggle to make money, generated an estimated 89% of all of the profits made by smartphone manufacturers last quarter.
Google (NASDAQ: GOOG) (NASDAQ: GOOGL)
If there were a company that could rival Apple's dominance in smartphones, it would unquestionably be Google. In many ways, Google's business model in mobile is the opposite of Apple's. Google made its Android mobile operating system open source and free to third-party smartphone makers, a strategy which has enabled Andorid to blossom into the platform that now powers the vast majority of the global smartphone market today.
However, while Andorid has in most ways proven a resounding success for Google, one that virtually assures its on-going dominance for decades to come, Android has also created some near-term headwinds for Google. Due to their smaller screen size, searches on mobile devices have proven to be less profitable for Google. And as Google's mobile searches have absolutely exploded in the past several years, Google's important cost-per-click metric has come under pressure in recent years. That being said, Google remains one of the most powerful companies in tech and a great way for investors to play the on-going growth of the smartphone market.
Samsung (NASDAQOTH: SSNLF):
Although it has struggled to an extent the past few years, it's impossible to discuss investing in the smartphone space without mentioning Korean electronics powerhouse Samsung. Historically, Samsung has consistently held the top spot as the largest maker of smartphones in the world. However, like Apple, Samsung derives the bulk of its smartphone profits from the high-end segment of its handset portfolio, which has been under pressure after underwhelming sales of its Galaxy s5.
Samsung is looking to right the ship with its Galaxy s6 and s6 Edge, which it released on April 10th. So far, both phones have received favorable reviews, and early indications are that pre-orders of the handsets have been well above the Galaxy s5's launch. It's also worth noting, that while it appears Samsung has a winner on its hands with its latest Galaxy smartphones, that Apple's move to larger-screened iPhones does put some pressure the "phablet" market that Samsung used to dominate. It can absolutely still succeed in the years ahead, but Samsung will have to earn its future smartphone wins by continuing to innovate on the design front as it did with the Galaxy s6 and s6 Edge.
Qualcomm (NASDAQ: QCOM):
Chip powerhouse Qualcomm has had a rough go of it lately, and pressure on multiple fronts has dragged on its stock. For starters, mounting evidence suggests its technological advantages in baseband chips, which enable smartphones to connect with cellular networks, might prove less robust than many believed. Qualcomm's hallmark Snapdragon baseband chips were conspicuously absent from certain models of Samsung's recently launched flagship Galaxy s6. This unwelcome news has furthered the notion that Samsung and/or Apple will ditch Qualcomm's baseband chips at the first opportunity they get. It's worth noting that Qualcomm's IP-licensing business actually generates the bulk of its profits. However, after a protracted dispute with Chinese regulators about the royalty rates it charges handset makers was resolved earlier this year, investors are also understandably concerned Qualcomm's core businesses could face on-going challenges in the years to come.
ARM Holdings (NASDAQ: ARMH):
Similar to Qualcomm, British semiconductor company ARM Holdings represents a broad play of the overall growth of the smartphone market. ARM's power-saving chip architecture designs quickly became the de facto standard for the entire smartphone market, much to the consternation of Intel. ARM Holdings doesn't sell any chips, but rather, collects royalties from the sale of devices using its chip design. And as you can imagine, business has been fantastic over the past several years with sales having more than doubled in the past 5 years. And while Intel will continue to erode ARM's massive market share in mobile, the company is also looking to challenge Intel in what many believe to be tech's next great growth market – the Internet of Things.
Foolish Bottom Line
Although each of these names is a powerful player in the smartphone market, these companies all have their own unique challenges and opportunities. As such, any investors seriously considering any of the smartphone stocks here will need to make sure they fully understand the company in question. That's one of the keys to successful Foolish investing, and one that certainly applies to stocks in the smartphone space today.
Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.