Mobility and mass adoption of smartphones was a top investment theme in the 2010s, and the development of the communications industry continues. 5G wireless networks are becoming available, offering faster speeds, lower latency (the time it takes for data to be delivered once a request is made), and new use cases for mobility technology -- encompassing everything from autonomous vehicles and connected industrial equipment to virtual reality and completely wireless home internet.
Why invest in 5G?
5G stands for the fifth generation of wireless networks. The benefits of 5G technology over the current 4G standard are immense and include:
- Speeds of up to 100 times faster than those of 4G networks.
- Lower latencies, with delays between data requested and received as short as a few milliseconds.
- Wider "freeways" that can carry more data.
In the U.S., all three major wireless carriers -- T-Mobile (NASDAQ:TMUS), Verizon (NYSE:VZ), and AT&T (NYSE:T) -- have already begun their nationwide rollouts of 5G service. Efforts are underway in Europe, Japan, China, and other developed wireless markets. This next-gen mobility is also making possible new ways for businesses to operate. The reach of these new services is still limited, though, and few consumers have upgraded to 5G-enabled devices.
Ways to invest in 5G
The 5G stocks of wireless carriers, device makers, and infrastructure providers represent a significant opportunity for investors in the next decade.
First, you can invest in the wireless carriers themselves. T-Mobile, Verizon, and AT&T, among others, are all focused on 5G since it enables them to deepen their relationships with consumer and business customers alike. Carriers that increase their customer bases and the "stickiness" of their subscribers by offering 5G mobile internet as part of their service bundles will be the most successful in the new 5G era.
Second, device makers have a lot to gain from the rollout of 5G. Preeminent among them is Apple (NASDAQ:AAPL), which didn't unveil its 5G-enabled iPhones until late 2020. An upgrade cycle could send Apple and makers of other devices (think smartphones, modems, and industrial equipment) into a new phase of growth in the years ahead.
Third, infrastructure equipment and management companies are poised to experience similar new growth in the next decade as they help wireless carriers and device makers prepare for the rollout of 5G. Among them are semiconductor companies and network equipment manufacturers — and even software firms that help manage mobile networks.
Top companies involved in 5G
Verizon is the largest mobile carrier in the U.S. and has sweeping plans for 5G that include better customer service and new applications, such as for smart cities and factories employing robotics and wirelessly connected equipment. But Verizon's growth has slowed in recent years, so the biggest beneficiary of 5G could end up being T-Mobile. The company acquired Sprint in 2020 to accelerate its next-gen network deployment and surpassed AT&T to take the No. 2 market spot. It's now gunning for Verizon and is on track to overtake its larger peer in number of U.S. subscribers, with its cheaper plans and improving network technology giving it significant traction.
Apple is always worth a mention when discussing new tech. Still the top smartphone company in the U.S. and steadily expanding its presence internationally, Apple is poised to continue thriving as new mobility services become available.
Also worth mentioning is top Apple supplier Skyworks Solutions (NASDAQ:SWKS). The connectivity chip designer derives about half of its revenue from Apple, but it is also involved in 5G launches with other smartphone manufacturers. Additionally, Skyworks has an expanding portfolio of solutions for other 5G devices such as modems and connected equipment, which ranges from healthcare devices to connected vehicles. As mobility is no longer limited to the realm of smartphones, Skyworks could be one of the best ways to invest in a connected world with fewer wires.
On the infrastructure equipment front, semiconductor chip manufacturer NVIDIA (NASDAQ:NVDA) is enlarging its presence in the mobility market. The company's chip designs are helping telecommunications companies to deploy their upgraded networks, enabling machine-to-machine communication over 5G, and supporting some of the new 5G use cases like vehicle autonomy and high-end gaming. NVIDIA could expand its share of the 5G market in a big way should its pending acquisition of ARM Holdings go through. Many semiconductor companies base their hardware designs on ARM products, including top mobility chip company Qualcomm (NASDAQ:QCOM). NVIDIA plus ARM could bring new competition to the mobile computing space and shake up the status quo in the industry.
Moving beyond the network infrastructure that creates actual 5G signals, other companies behind the scenes handle the increased volumes of data traveling over the airwaves. Arista Networks (NYSE:ANET) is a top data center and networking gear provider that offers a complete suite of software to help companies manage their new and upgraded infrastructure. Arista is actively signing deals with telecom companies that need new data centers to increase their network capacities and need help managing their new networks. The company also launched a new business line that serves smaller businesses seeking to update their IT equipment. Arista is well positioned be a dominant industry participant since many organizations will likely take advantage of 5G technology in the next decade by building the necessary infrastructure.
Risks of investing in 5G
As with all investments, there are risks associated with investing in 5G-focused companies. Growth is rarely linear and is contingent on consumer and business hardware upgrades and new technological breakthroughs. Semiconductor and device manufacturing are particularly cyclical industries, meaning that stock price variability can be high.
The good news is that universally accepted standards for 5G infrastructure have been agreed upon by government agencies. It's unlikely the rollout of 5G wireless networks will be disrupted by other technologies or materially hindered in another way. Too many entities, including large corporations and government regulatory agencies, are invested in creating a 5G future.
You can directly reduce your investment risk by diversifying your portfolio. Also, investing in companies with comparatively stable business models can help to decrease risk. T-Mobile and Verizon generate revenue via subscriptions and thus don't experience the same degree of cyclicality as companies in other market segments. Verizon also pays a dividend, which could help to further lower the risk profile of your portfolio by incorporating a steady stream of cash.
Another risk to remember is that the current market leaders may not maintain their positions as new communication services enter the fray. T-Mobile's success illustrates how fortunes can quickly change when new technologies emerge.
The 5G future
5G technology is here, but it will take many years for telecom companies to fully deploy next-gen mobility services. During that time, infrastructure equipment and software providers have plenty of opportunities to help develop 5G technology's capabilities. As with all investment opportunities, remember to think long-term -- in years, not months or quarters. 5G stock prices will surely rise and fall, but they are likely to overall rise in the decade ahead.