This blog post offers a comprehensive guide to investing in 5G related companies.
By now, you have probably heard of the 5G technology. It’s a buzzword, and it’s written all over the internet. But, as an investor, how can we invest in 5G-related companies? And how can we take advantage of it for the next decade?
Let’s find out how to navigate those waters.
What Is 5G Anyway?
If you own a mobile phone, you probably use either 3G or 4G mobile network technologies. That’s what allows us to browse the internet, download apps, and send emails on the go from our mobile phones.
Despite 4G being great and indispensable, it is still relatively slow for today’s standards. This is more noticeable when compared with a wired fiber connection at home, for instance.
5G sounds like the next incremental upgrade to 4G, but that’s not quite true. 5G is a game-changer technology that will have the potential to seriously disrupt entire industries.
It is the next generation of mobile network technology that will be up to 100 times faster than 4G speeds. As per Wikipedia, it has the potential to offer fiber-like speed wirelessly. This is huge!
McKinsey reports that those speeds of more than 100 Mbps make 5G a viable alternative to wired broadband. That is great news, especially in many markets without access to fiber-optic internet.
Designed to be the most ultra-fast mobile option, high-band 5G (often in the form of standalone 5G) promises to put the speed, latency, reliability, and security of fiber in the air, expanding what mobile devices can do.Connected world: An evolution in connectivity beyond the 5G revolution
Besides speed, there is also capacity. There is a limit to how many devices can be connected to a single 4G antenna. That limit will be a lot higher for 5G networks, as it can support up to one million devices per square kilometer. That is 10 times more than what’s currently supported by 4G networks.
If you want to know more about the nitty-gritty details of 5G and follow up on its latest developments, I highly encourage you to check out this article on Tom’s Guide.
That’s All Fine, but Is It Too Late to Be Investing in 5G?
Is it too late to be investing in 5G? Absolutely not! 5G wide deployment has only begun in 2019. For now, it is only available in just a few cities, where mobile operators are running trials.
Most mobile phones used today are not even 5G-enabled.
Ericsson, a Swedish telecoms giant, predicted that superfast 5G internet would cover up to 65% of the world’s population by the end of 2025. In one of their studies, the total value of the global addressable 5G-enabled market for service providers across the 10 industries is projected to be USD 700 billion in 2030, beyond mobile broadband.
The upside is potentially huge.
As an example, IHS Economics & IHS Technology predicts the following:
In 2035, 5G will enable $12.3 trillion of global economic output. That is nearly equivalent to US consumer spending in 2016 and more than the combined spending by consumers in China, Japan, Germany, the United Kingdom and France in 2016The 5G Economy: How 5G Technology will Contribute to the Global Economy
What all of this means is that there’s still plenty of opportunities to invest in 5G.
What Industries Will Be Impacted?
Phone makers will likely profit quite substantially from 5G. Several companies are already producing or preparing 5G-enabled phones. Thus, anyone who wants to use 5G will have to own one of their phones. Such companies like Apple, Samsung, LG, and others will see their revenues grow as they sell more new, 5G-enabled phones.
The telecommunications services industry is another obvious industry that could profit from 5G. Companies like AT&T (NYSE:T), Verizon (NYSE:VZ), and China Mobile (NYSE:CHL) are providing services to consumers directly. It’s then fair to say they will likely grow of the back of 5G.
Ericsson published a study in which they predict that operators’ potential additional revenue gain will be between 12% and 36%, depending on their role in the value chain, from the 5G-enabled industry digitalization market opportunities by 2026.
But all of this also comes at a cost. One particular limitation of 5G is that the cell reach is short, so more cells are required—a lot more cells, in fact. This means that network-related capital expenditures will increase significantly. According to McKinsey, those expenditures would have to increase 60% from 2020 through 2025. That’s roughly doubling the total cost of ownership during that period, as per their analysis. Network operators will have to find a way to compensate for that investment. This will be one of their main challenges going forward.
Although investing in phone makers and telecoms is a good bet, it won’t be enough.
Beyond mobile operator networks, 5G is also expected to be widely used for private networks with applications in:
- industrial IoT;
- enterprise networking;
- critical communications;
- real estate;
- autonomous vehicles;
- smart cities;
- virtual reality;
- mobile payments;
- and many other industries.
Let’s deep dive into a few of those industries to find out a few options worth considering.
Investing in 5G, the Easy Way
The easiest way to be investing in 5G is to do it through an Exchanged Traded Fund (ETF). There are several ETFs focused on 5G, and they tend to track thematic indexes. Here are two examples of 5G ETFs:
- First Trust Indxx NextG ETF (NASDAQ:NXTG). This ETF follows an equity index called the Indxx 5G & NextG Thematic Index, which tracks the performance of around 100 companies that are at the core of the research and development of the new 5G cellular technology and next-generation technologies as they emerge. It offers a reasonable yield of around 2.2%;
- Defiance Next Gen Connectivity ETF (NYSE:FIVG). This ETF is based upon the BlueStar 5G Communications Index. That index provides exposure to global companies whose products or services are expected to contribute to the roll-out of 5G networks. It yields around 1.75%.
This is definitely the easiest route, but what if you want to cherry-pick stocks instead?
Investing in 5G, by Sector
If ETFs aren’t for you and you prefer stock-picking, then there are plenty of companies to invest in.
I’ve mentioned the several industries that will benefit from the 5G technology above. These will use 5G as an enabler for their business models. I will not mention those industries in this section, though. I will only be going through sectors and companies directly involved in the development of 5G components.
Real Estate Investment Trusts
As already mentioned, one particular limitation of 5G is that the cell reach is short, so more cells are required. That means more cells need to be deployed to allow enough coverage for a seamless 5G experience.
Some companies provide the cellular infrastructure that mobile operators use, and therefore these companies will have a huge opportunity to grow. Here are 3 examples of Real Estate Investment Trusts to consider for investment:
- American Tower (NYSE:AMT) – it owns and operates cell towers in the U.S. and abroad, primarily in India and Brazil. It is forecasted to grow earnings at 20%+ annually over the next five years, and the current dividend yield is 1.7%;
- SBA Communications (NASDAQ:SBA) – owns cell towers in North, Central, and South America. Most of the revenue comes from the USA, but its dividend is a modest 0.63%;
- Crown Castle International (NYSE:CCI) – leases a portfolio of properties that includes cell towers and fiber optic cable. It’s based only in the USA and its dividend yield is around 3%.
We will find most companies involved in 5G technology amongst hardware providers. To successfully roll out 5G technology, there will be a great need to produce base stations, radio hardware, chips, optical fiber, wireless hardware, and much more.
Here is a list of companies that provide hardware in those areas:
- Samsung (005930.KS), Ericsson (ST:ERIC-A), and Nokia (NYSE:NOK) – all these 3 companies’ base stations and equipment were used by carriers when South Korea launched its 5G network;
- Cisco Systems (NASDAQ:CSCO), Datang Telecom (SS:600198), Ericsson (ST:ERIC-A), Nokia (NYSE:NOK), Qualcomm (NASDAQ:QCOM), Samsung (005930.KS), and ZTE (HK:0763) produce and sell 5G radio hardware and 5G systems to carriers around the world;
- Intel (NASDAQ:INTC) will supply 5G modems to smartphone makers;
- Corning (NYSE:GLW) – they are the world’s leading manufacturer of optical fiber, the material that will act as 5G’s backbone to connect infrastructure. As per McKinsey, to improve transmission, mobile operators must undertake large-scale fiberization efforts;
- Skyworks Solutions (NASDAQ:SWKS) – supplies analog chips that connect a wide range of mobile devices to wireless networks.
A number of the organizations above, like Qualcomm, Intel, Ericsson, Nokia, and Samsung, also produce and sell chips for a number of systems. They are actively doing research and development and participating in field trials and advanced testing phases together with carriers around the world.
Service Providers and Consumer Tech
There are plenty of service providers that can grow substantially off the back of 5g developments. I’ll highlight two sectors to show you examples of companies that are worth keeping in mind.
First, let’s look into telecoms. Mobile operators will be in a strong position in order to gain from the 5G implementation. You can really look globally for those companies, but I would like to highlight a few from the USA and China:
- China Mobile (NYSE:CHL) – it’s the largest telecom company in the world. Given the massive Chinese market available to them, the growth rate of the Chinese economy, and the pace at which they are deploying 5G technology, they are set to gain quite substantially in the next few years;
- US-based organizations such as Verizon (NYSE:VZ), AT&T (NYSE:T), and T-Mobile (NASDAQ:TMUS) have also been deploying 5G networks in some US cities and will benefit from the 5G rollout going forward;
Since 5G will enable more use-cases in several industries, there is also an expectation that more business will be conducted online, which will benefit payment companies like Mastercard (MYSE:MA), Visa (NYSE:V), Square (NYSE:SQ), Paypal (NASDAQ:PYPL), and Stripe among others. Finally, phone makers such as Apple (NASDAQ:AAPL) will have another opportunity to sell 5G-enabled devices to existing customers, which will be a huge revenue stream for them going forward.
Satellite and Space Exploration
5G coverage can come in many ways. As mentioned above, one way is to deploy many cell towers in densely populated areas. However, that won’t work in many remote regions in the world.
One alternative to cover those areas is to use low earth-orbit satellites.
Low-earth orbit (LEO) satellites could also deliver a breakthrough—not necessarily in network performance but in the breadth of coverage. By essentially beaming broadband down from space, they could bring coverage to remote parts of the world where the economics do not work for laying fiber or building networks of towers. However, providing coverage requires a constellation of many satellites orbiting at once, making viability uncertain. OneWeb and SpaceX are the only companies to launch test satellites (as of this writing), and no commercial services are yet available.Connected world: An evolution in connectivity beyond the 5G revolution
Although SpaceX and OneWeb are not publicly listed companies, there are ways to invest in them. For more details, check out our article on how to buy SpaceX stock.
This is just a small preview of what is worth considering to invest in 5G-related companies. The possible applications of 5G are enormous, and there is still a lot of active research going on in order to figure out what use-cases make sense for companies to bet on.
It’s Not All Roses, Though
It’s still early days for 5G. We haven’t seen the technology work at scale and therefore haven’t seen the consequences of having the majority of the world using it.
There are risks surrounding 5G, which won’t stop it but will require more research and development to mitigate them. Some of the most impactful risks are:
- Health risks, especially radiation concerns. Scientific American states that no complete research regarding its effect exists, and there might be health risks involved;
- Security – a paper entitled A Formal Analysis of 5G Authentication highlights risks around the immaturity of the 5G technology;
- Mass surveillance – there could be a risk of a data breach and potential mass surveillance by governments around the world.
No world-scale technology would go by without its risks, and it’s important to highlight them early, so there’s enough time to test and find better solutions for these problems.
We’re still in the early days of 5G. This means it’s still a great time to be investing in 5G. The technology is live in some cities so far, but most of the world doesn’t have any coverage yet.
Furthermore, giants such as Apple haven’t yet release 5G-enabled phones, which is an indication it’s still early days for the 5G technology.
That said, I believe it is still the right time to take advantage of 5G as an investor. As you’ve seen throughout this blog post, there are many companies to invest in, and I’ve not even looked into smaller players.
Here are a number of FAQs that summarize some of the points made throughout this article.
5G is the fifth-generation wireless technology for digital cellular networks. 5G is a game-changer technology that will have the potential to seriously disrupt entire industries.
Absolutely not! 5G wide deployment has only begun in 2019. It is only available in a few cities, where mobile operators are running trials. Most mobile phones operating today are not yet 5G-enabled, so it’s still a perfect opportunity to invest in 5G.
Most industries will be affected by 5G and what it enables, from industrial IoT, mobile payments, agriculture, healthcare, etc.
The easiest way to invest in 5G is through thematic ETFs that track the performance of companies that are at the core of the research and development of the new 5G cellular technology and next-generation technologies as they emerge.
A few sectors such as hardware (chipmakers), service providers, real estate investment trusts, consumer tech, and satellite production are worth considering for investment opportunities.
There are 3 main risks associated with 5G:
– Health risks, especially radiation concerns;
– Security, with some papers highlighting risks around the immaturity of the 5G technology;
– there could be a risk of a data breach and potential mass surveillance by governments around the world.
Do you have any questions about investing in 5G? Let us know in the comments section below!