An Update On The 5G Sector And On My 5G Stock Picks

|
Includes: AAPL, AMZN, BABA, BIDU, DIS, ERIC, FB, GOOG, GOOGL, MOMO, NFLX, NOK, QCOM, SSNLF, SWKS, TCEHY, TMUS, VZ, YY
by: Matt Bohlsen
Summary

A very brief summary on the 5G trend, and my top seven 5G stocks to play the 5G boom.

The 5G infrastructure is being rolled out globally, and 5G smartphones are just starting to come out now.

Recent company developments in the 5G sector.

This article first appeared on Trend Investing on April 22, 2019; therefore, all data is as of that date.

For a background on my 5G articles, you can read:

In the last article listed above, I had Qualcomm (NASDAQ:QCOM) as my top 5G stock when it was at USD 57.24 (on a 2020 PE of 16.3), and I still view it as my top 5G stock today, even if it is a bit more expensive at USD 79.89 (now, on a 2020 PE of 17.6).

The other area I favored was the 5G infrastructure players due to their first-mover status. The quote below highlights the potential:

Allied Market Research, the global 5G infrastructure market is estimated to reach $58 billion by 2025, up from $371 million in 2017, representing a compound annual growth rate of 96 percent.

Source

Source: "What's the Big Deal About 5G?"

A very brief summary on the 5G trend

  • 5G will be 10x faster and allow you to be online wherever you are, which should mean portable devices will increase further in popularity.
  • 5G will facilitate massive growth in the Internet of Things [IoTs] wherein almost everything will be connected and communicating. Data flow will massively increase, as will the need for data storage.
  • 5G rollout has already commenced in the USA and other countries and will become more common in 2019 and 2020.
  • 5G may well be the biggest new trend in 2019/2020, with ~1 billion people worldwide likely to be 5G-enabled within five years from now.

Put simply, 5th Generation [5G] wireless technology will result in a massive boost for the internet. 5G will lead to a vastly improved internet experience, the rise of the Internet of Things, and a boom in online entertainment (streaming), gaming services, and autonomous vehicles. It will allow content on demand anytime, anywhere.

Top seven 5G stocks to play the 5G boom starting in 2019

  • Nokia (NOK) and Ericsson (ERIC) - The 5G infrastructure providers should do well early as the telcos spend big on 5G transmitters and other infrastructure.
  • Qualcomm and Skyworks Solutions (SWKS) - The 5G modem and network connection developers (including IoTs) will see a huge pickup in demand for their products.
  • Apple (AAPL) and Samsung Electronics [KRX:005930] [XLON:SMSN] (OTC:SSNLF) - The 5G-enabled smartphone and PC makers such as Apple and Samsung should benefit from a 5G upgrade super cycle. Apple and Samsung will also benefit by providing online services to their huge customer bases.
  • Netflix (NFLX) and other popular streaming companies (Amazon (AMZN), Disney (DIS), and many others such as Momo (MOMO) and YY Inc. (YY)) will be big winners. The online entertainment (especially video streaming) companies such as Netflix should get a significant boost as consumers continue to switch out of fixed location/cable/TV to the new mobile 5G-enabled entertainment world.

There are many other internet-related companies that should receive a boost from the 5G effect. Alphabet Google (GOOG) (GOOGL), Facebook (FB), Baidu (BIDU), and Tencent (OTCPK:TCEHY) would all be significant secondary beneficiaries due to the boom in online advertising revenues. Online shopping (Amazon (AMZN), Alibaba (BABA)) and the fintech companies can all expect to do very well. Finally, the wireless network telcos can do well after absorbing large initial CapEx costs.

5G infrastructure is being rolled out globally

On April 2, Ctia reports:

"The United States is tied for first with China in global 5G readiness, according to a new report from global telecommunications research firm Analysys Mason. The first large-scale 5G deployments are happening now, in communities across America.

US 5G rollout update - April 2019

As the screenshot below shows the US rollout of 5G is well underway but will still take a few years to fully roll out.

Source: Lifewire

Note: The Lifewire link above gives more details such as which companies provide which US cities with 5G. For example, Verizon (NYSE:VZ) provides 5G Home to Houston TX, Sacramento CA, Indianapolis IN, and Los Angeles CA. Verizon's Mobile 5G service is currently available only in limited areas. It costs $10 extra each month. AT&T (NYSE:T) is available in Houston TX, Dallas TX, Atlanta TX, Waco TX, Charlotte NC, Raleigh NC, Oklahoma City OK, Jacksonville FL, Louisville, KY, New Orleans LA, Indianapolis IN, San Antonio TX, Austin TX, Los Angeles CA, Nashville TN, Orlando FL, San Diego CA, San Francisco CA, and San Jose CA.

T-Mobile US (TMUS) has partnered with Nokia in a $3.5 billion deal to be supplied with 5G network equipment. T-Mobile plans to start deploying mobile 5G in 2019 with 30 cities named so far, starting with New York, L.A., Dallas, and Las Vegas. T-Mobile plans to cover two-thirds of the US by 2021 and 90% by 2024.

5G availability around the world

The 5G global rollout is rapidly advancing in most countries around the world.

You can read a recent country by country update here.

Lifewire states:

Most countries will have access to 5G networks by 2020.

Ericsson forecasts:

By 2024, 5G subscriptions will reach 1.5 billion, and that coverage will blanket over 40 percent of the world's population.

5G smartphones are just starting to come out now

5G-enabled flagship smartphones are just starting to become available now, with new launches to continue regularly in 2019 and 2020. Samsung Electronics has released a 5G smartphone, and Apple is thought to bring their 5G smartphone out in 2020.

Samsung has led the way with their Samsung Galaxy S10 5G and Samsung Galaxy Fold. Both are expensive flagship models. Lifewire state:

The Samsung Galaxy S10 5G launched through Korean carriers on April 5 and is coming to Verizon on May 16 (preorders April 18); AT&T, Spectrum Mobile, Sprint, T-Mobile, Xfinity Mobile in the summer or spring of 2019; Swisscom in July 2019; EE in 2019; Telstra; and O2." Samsung Fold 5G is due out in mid-May 2019.

Samsung Galaxy Fold - Offers 5G and a foldable screen

Source

Motorola (NYSE:MSI) has already released their Moto z3 5G modular smartphone, so it was technically the world's first 5G smartphone. With Motorola's 5G phone, you need to snap on the 5G moto mod (modular) in order for it to work on a 5G network.

ZTE's (OTCPK:ZTCOF) 5G phone is expected to be available in China May 6, 2019, and through various carriers in Europe, sometime in the first half of 2019. Xiaomi (XI) will launch their first 5G phone in May 2019, Huawei in mid 2019, LG country by country in 2019, and Oppo in April-May 2019.

In many cases, networks may not yet be fully ready to support users, but this will improve rapidly over the next year or two, especially in major capital cities. If there is no 5G coverage, the phones will still work on 4G/3G/2G networks.

Global 5G smartphone shipments to grow from 2 million units in 2019 to an impressive 1.5 billion in 2025

Source

Most of the above companies will use Qualcomm 5G modems (Snapdragon X50 5G modem).

Qualcomm dominates 5G smartphone chips and modems

Source

Recent company developments in the 5G sector

On February 26, Skyworks Solutions (SWKS) reported: "Skyworks launches Sky5™ LiTE for universal 5G deployments."

On April 5, Tom's Guide reported:

The Truth About 5G: What's Coming (and What's Not) in 2019... Qualcomm has said that 20 operators around the world will roll out 5G in 2019, including all major US carriers. Twenty device makers have committed to using Qualcomm's 5G components in their devices.

On April 10, Nokia reported:

ANTEL and Nokia make the first 5G call on a commercial network in Latin America."

And, also on April 10, Nokia reported:

"BT among first to deploy Nokia 7750 SR-s platform as it increases capacity to handle massive traffic growth from FTTP and 5G.

On April 12, PC Mag reported:

Race to 5G: April 2019 Update. In April, Verizon launched the world's first 5G phone and we got to test AT&T's 5G network in Dallas.....Verizon to launch the Samsung Galaxy S10 5G on May 16. We got to test both AT&T's and Verizon's millimeter wave 5G for the first time this month. Coverage is extremely limited; Verizon only covers parts of downtown Chicago and Minneapolis, and the only areas AT&T would specify are one park and one plaza in Dallas, although it now claims to cover parts of 19 cities.

On April 15, Skyworks Solutions reported:

Skyworks launches suite of custom waveguide circulators for 5G infrastructure.

Of interest, Skyworks mentioned:

According to a March 2019 report from Allied Market Research, the global 5G infrastructure market is estimated to reach $58 billion by 2025, up from $371 million in 2017, representing a compound annual growth rate of 96 percent. Growing penetration of machine-to-machine/Internet of Things connections and the surge in demand for mobile broadband services are significant drivers.

On April 17, Ericsson reported:

Ericsson and Swisscom in European commercial 5G first. Swisscom consumers to enjoy commercial 5G services in 54 initial cities and communities across Switzerland, enabled by Ericsson's advanced 5G network features. Ericsson Spectrum Sharing will allow Swisscom to reach its goal of nationwide 5G coverage by end of 2019.

On April 17, Reuters reported:

Qualcomm stock jumps 23 percent on surprise settlement with Apple. Qualcomm Inc on Tuesday won a major victory in its wide-ranging legal dispute with Apple Inc as the companies reached a surprise settlement that called for the iPhone to once again use Qualcomm modem chips. Intel Corp, which had been Apple's sole iPhone chip supplier for the past year amid intensifying conflict with Qualcomm, said hours after the settlement was announced that it would exit the modem chip business.

On April 22, CNBC reported:

Apple will release a 5G iPhone in 2020 with chips from Qualcomm and Samsung, top analyst says. Apple could release iPhones in 2020 equipped with 5G modems, according to research notes from TF International Securities analyst Ming-Chi Kuo. The modems could be provided by both Qualcomm and Samsung, according to the research. Access to 5G modem parts is one major reason why Apple settled a bitter legal battle with Qualcomm last week.

Further reading

Conclusion

5G networks have been rolling out steadily in preparation for 5G devices which are just starting to be launched now in April 2019. By the end of 2019, there should be about 20 operators offering 5G and at least 6-12 flagship 5G smartphones available, as well as 5G networks becoming established in many major cities globally.

For investors, this means that 5G will increasingly be a trend topic from now on. My top 7 5G stocks remain the same, noting again that the infrastructure providers such as Nokia and Ericsson will benefit first, then the modem and network connection companies (in particular, Qualcomm) and the smartphone sellers (Samsung in 2019, Apple in late 2020). Finally, the streaming companies will start to see increased benefits from 5G by 2020 onwards.

Right now, my top 5G stock continues to be Qualcomm as it appears to be the best placed of my top 7 to benefit from the imminent 5G smartphone rollout, albeit initially only in the flagship products. At this time, I continue to like the key 5G infrastructure providers Ericsson and Nokia in a sector forecast to grow at a CAGR of 96% to 2025. To a lesser extent, I also like the smartphone companies that can have success selling expensive flagship models. Samsung and the Chinese brands (ZTE, Xiaomi, Huawei, Oppo) appear to be leading the way. For those wanting the safety of a telco, then Verizon or T-Mobile would have appeal.

As usual, all comments are welcome.

Disclosure: I am/we are long SAMSUNG ELECTRONICS [SMSN], ALPHABET GOOGLE (GOOG), FACEBOOK (FB), ALIBABA (BABA), TENCENT (TCEHY), BAIDU (BIDU), MOMO (MOMO). I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.