5G Boom: Top Large And Small Cap Stock Index

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Includes: AAPL, AAXN, ACLS, AMBA, AMT, APPN, CCI, CRNT, CSCO, ERIC, GLW, GNRC, GOOGL, INTC, MVIS, NOK, NXPI, QCOM, T, WIFI
by: Euphoric Investment
Summary

IoT is expected to become a trillion dollar industry in the next few years based on a Compound Annualized Growth Rate (CAGR) of approximately 32.04%.

5G provides a unique investment opportunity for investors in both large and small cap stocks.

The 5G implementation process can be broken down into three phases: internet backbone/data servers, wireless infrastructure, and consumer channels.

*This Article is written by Euphoric Investment authors Jalen Williams, Marco Kruger, and Chloe Wade

Many analysts are claiming 5G will be the next big industrial revolution. The purpose of this article is to educate our audience about the important role 5G will have on a global scale, the changes it will bring to our day-to-day lives, the Internet of Things (IoT), and how best to capitalize on this paradigm shift.

Intro

The advent of mobile telecommunication and first generation technology was introduced in the early 80’s with the “Zack Morris” style cellular phone as it’s icon. These types of phones can be characterized as big and blockish with spotty reception. Much has changed in the evolution of cellular communication, mobility, its usage, and the extraordinary capacity these handheld “smart” devices have. In 2019, 66.5% of the world owns a handheld mobile device. Many of us rely on our smartphones to not only make phone calls but to pay our bills, receive news, trade stocks, business and educational purposes, share photos/videos with friends, and many other purposes in our daily lives. Every decade, a new generation of speed and network capability has been introduced, allowing us to rapidly connect while integrating more devices to create a broader network. We are at the cusp of 5G technology which many believe to be the catalyst that will interconnect nearly every thing. With the enhancement of network speeds and the amount of data it can maintain, 5G will drive significant changes in the efficiencies within many industries such as: manufacturing and lower cost output, healthcare industry improvements allowing for newer concepts like remote surgical procedures, Intelligent Cities and smart grid technology, and future tech with applied virtual and augmented reality (VR/AR) integration within our day-to-day living. 5G could even lead to concepts like cranial inserts for telepathic communication (already devised by Elon Musk) and many other creative solutions our world has not yet conceptualized.

(Source: Euphoric Investment)

IoT Global Market Impact

(Source: IoT Analytics)

While countries around the globe continue to establish 5G technology, analysts continue to estimate the economic potential over the next few years. The widespread adoption of 5G will enable Internet of Things (IoT) technology to become more innovative, efficient, and reliable. In 2018, the IoT market was approximately $150 billion. As shown in the graphic above, this market is expected to grow to over $1.5 trillion by 2025, with a CAGR of 39%. This growth can be attributed to different segments within the IoT market. The industrial IoT space will grow as smart factories become more prevalent, while the IoT of healthcare will flourish due to remote monitoring, mobile platforms, and analytics.

The diagram below segments the economic growth potential by industry by 2025.

Source: (Grand View Research, Euphoric Investment)

5G Process

While there is a difference of opinion among analysts, the consensus forecast of IoT is to be a trillion dollar industry over the next few years. For this to happen, 5G will need to come to fruition as the growth in IoT stems from 5G network capability.

The diagram below portrays how the 5G network would work.

(Source: Euphoric Investment)

Each step in this process is explained in the sections following the index below.

Our 5G Index

The companies outlined below should greatly benefit from the implementation of 5G/IoT. These companies, from our research, have been categorized within a large cap index and a small cap index respective to its size of market capitalization. These businesses are diversified among various markets (such as network hardware, data transfer, wireless infrastructure, and consumer channels).

(Source: Euphoric Investment)

Internet Backbone/Data Servers

(Source: Euphoric Investment)

ISP’s such as AT&T and Verizon have various points of presence (POP), which are essentially backbones full of servers, modems, routers, and other hardware that function to connect networks. In order for companies to communicate to one another across networks they must connect to a network access point (NAP). To accomplish the communication of data within PoP and NAP’s, companies must use fiber optic cables.

AT&T [T] is a telecommunications company that kicks off the 5G process according to our diagram. From their 2018 annual report, 39% of AT&T’s revenues stemmed from their mobility services. When 5G is fully established, AT&T’s mobility segment will facilitate their growth. Additionally, they will be deploying FirstNet, the nationwide network for first responders. 25% of their revenues come from their Entertainment Group segment, which contains their broadband service. They have been investing in this segment for several years and believe that their use of fiber is driving momentum and will be a big part of their 5G success. According to ReportsnReports, 5G networks are expected to generate nearly $250 billion in annual service revenue by 2025.

Cisco [CSCO] will benefit from the proliferation of 5G as they have established their dominance in the hardware market with various products and services focused on network solutions. Cisco estimates there will be 500 billion devices connected to the Internet by 2030. As ISP’s expand their core networks, Cisco will be at the forefront providing hardware solutions. According to IDC, the 5G network infrastructure market will grow at a 118% CAGR to be worth $26 billion in 2022.

Intel [INTC] will be heavily integrated within all areas of 5G. Building on its 4G investments and experiences, Intel will introduce 5G modems in 2019 that will allow a range of devices, including smartphones and home wireless broadband gateways. Sandra Rivera, general manager of the Network Platforms Group, at Intel stated, “5G requires a new range of technologies, from the cloud to the network to the device, all of which will run on Intel.” Intel said it had reached a deal for network gear makers Fibocom Wireless Inc., Arcadyan Technology Corp., and others to include Intel modem chips in modules and gateways that will help industrial equipment connect with 5G networks.

Data Transfer

(Source: Euphoric Investment)

Fiber optic cables are also used to connect macro/micro cells to network backbones in a process called backhaul. As macro cells multiply and other 5G infrastructure is constructed, fiber optics will be in high demand. The companies that benefit from data transfer are fiber optic manufacturers and other backhaul solutions providers. The fiber optic market size is estimated to be worth 9.1 billion by 2025 (Source: Grand View Research).

Corning Inc. [GLW] has fiber optics that run over 4.7 million miles, connecting 50 cities across America earning them the title of largest fiber network in North America. With an already established base, they will only continue to thrive as 5G increases the demand for more fiber optics. Ceragon Networks [CRNT], a small-cap ethernet and wireless backhaul solutions provider is another company that has strong growth potential. Ceragon has created a product known as FibeAir IP-20, a backhaul solution, which has high capacity and covers all frequencies from small band to high band. This allows for higher speeds and more data usage, which creates the perfect ecosystem for 5G.

Wireless Infrastructure/Cellphone Towers

(Source: Euphoric Investment)

In macro cell towers, there are multiple-input and multiple-output (MIMO) antennas that specialize in multiplying the capacity of data, increasing speed, and reducing latency through higher frequency mmWaves. 5G will introduce massive MIMO, which is a large collection of these antennas that are built into these towers to amplify signal. ISP’s will buy up the real estate on these towers to try and get an upper hand on their competition. The companies that will benefit here are REIT’s that lease rights to their towers to internet service providers, as well as those who deal with MIMO. According to a 2018 report, Grand View Research estimates the global wireless infrastructure market to reach $116.75 billion by 2025.

American Tower [AMT] is a large-cap that operates in this space and 88% of their customer base consists of AT&T, Verizon, Sprint, and T-Mobile. They have established their spot in the cell tower market and have continued to add towers throughout 2019. As 5G gets implemented throughout the U.S., companies will be focused on rural areas as well as urban areas. According to UBS, American Tower should benefit more than the other tower companies as they have the most coverage of rural areas. Moving forward, they believe that the combined Sprint/T-Mobile/Dish merger will increase demand for their portfolio and that 5G will be a catalyst for growth.

Axcelis Technologies [ACLS] focuses on ion implantation inside semiconductor chips. They are and continue to be the global leader in technology development and manufacturing of ion implant systems and services for the semiconductor industry for 40 years. Without ion implantation, the chips would not process data at such a high speed, because the ions need to be directed to create an accelerator inside the chip. With their designs and implementation, Axcelis will be a staple as 5G causes demands for more efficient chips.

NXP [NXPI] is a semiconductor company that will be used in multiple facets of 5G. One of their major focuses will address 5G RF (radio frequency) power amplification needs from MIMO to massive MIMO. They are able to do this using a chips they created known as multi-chip modules (MCM) and placing them inside cellular antennas. The chips are smaller and lighter than many other semiconductor chips; but what separates them is allowing for the integration of several different applications needed for the switch from MIMO’s to mMIMO’s, further maximizing speed and capacity.

Nokia [NOK] benefits during this part of the process because it provides massive MIMO (mMIMO) solutions to cell phone carriers across the globe. In June 2019, they announced that China Mobile, the world’s largest cell phone carrier, will adopt their AirScale mMIMO Adaptive Antenna to aid their transition to 5G. Nokia also currently boasts 42 5G agreements in the U.S. and internationally.

Ericsson [ERIC], with a recent partnership with IBM, has announced a “research breakthrough in 5G,” with a mmWave antenna module designed for use on 5G base stations. It has an array of 64 small antennas that amplify the signal out with dual-polarization capacities (meaning that people with two different phone plans can be serviced) that make it ideal for dense urban areas. This new silicon antenna will make it a product that will be in high demand due to its low manufacturing cost once 5G is released. Intel is also aiming to sell versions of its flagship processors for use in 5G base stations, which help carry mobile phone signals back to core networks and said it reached a deal with Ericsson to use Intel processors in their 5G networking gear.

Boingo Wireless [WIFI] provides mobile internet access to 1 billion customers annually. For seamless wireless deployment they have adopted two methods: Distributed Antenna Systems (DAS) and small cells. DAS is currently what they use to help boost cellular coverage in densely populated areas. However, with the evolvement of 5G, they are adding more small cells which provide a cheaper alternative to target specific gaps in their coverage. In their 2019 Q2 earnings call, Peter Hoveneir, Boingo CFO stated, “We look forward to the incremental growth opportunity 5G will provide, in addition to the trajectory we see in key growth drivers of DAS, wholesale WiFi and military/multifamily”, Boingo’s three primary revenue streams.

Consumer channels

(Source: Euphoric Investment)

Since mmWaves get obstructed easily, small cell technology will likely be implemented to strengthen signal and act as an amplifier in congested areas like cities. Signal transmitted from small cell devices will then have the ability to connect and communicate to autonomous vehicles, cell phones, sensors/cameras, and other “smart devices/structures.” Various companies will see growth as a result of this phase in the process.

According to Cisco, 500 billion devices are expected to be connected to the Internet by 2030. This statistic epitomizes the macro scale impact 5G will present to our world and daily lives.

Crown Castle [CCI] is a REIT that operates in the same market space as American Tower. However, unlike American Tower, they have decided to invest into the small cell and fiber aspect of their business. Mobile service providers have embraced small cells in order to keep the signal strong in certain areas. Crown Castle already has 30,000 small cells with another 35,000 under construction under the next 18-24 months. They also have over 70,000 route miles of fiber. Their investments into these two areas bolsters their future outlook since small cell deployment is dependent on their fiber network. These miles of fiber and small cell construction will provide the company with residual, growing income.

Semiconductor companies such as Qualcomm [QCOM] will grow because there will be an increased demand for 5G chips. Companies such as Apple and Samsung have already teamed with Qualcomm to use their chips in their newest phone upgrades. With the exit of Intel from the 5G cell phone modem business, they have essentially left the door wide open for Qualcomm to control the market space. Qualcomm will also be prominent in the autonomous vehicle industry. “We believe our new Snapdragon Automotive Platforms will help launch the connected vehicle into the 5G era, offering multi-Gigabit low latency speeds, lane-level navigation accuracy, and an integrated and comprehensive C-V2X (cellular vehicle-everything communication) solution for increased road safety for cars and transportation infrastructure,” said Nakul Duggal, senior vice president of product management for Qualcomm.

Intel as stated previously, plans to be deeply embedded within 5G. One of the many ways they will achieve this is to also sell modems to automakers for use in connected vehicles, as well as to manufacturers for use in connecting industrial equipment. “Intel also plans to land its other chips - including processors and the so-called programmable chips it gained by acquiring Altera Inc in 2016 - in a variety of networking gear”, Bob Swan, Intel’s chief executive, said. Intel’s subsidiary Mobileye, a global leader in computer vision for automotives, plays a large role in autonomous driving. They develop vision-based advanced driver systems providing warnings for collision. They have various projects known as REM (road experience management), RSS (responsibility-sensitive safety), and ADAS (advanced driver assistance systems) that help to build up EyeQ (their main processing system-on-chip device (SoC)). Recently, they’ve been working on, EyeQ5, a processor that will support 5G capabilities such as visual central computer processing, an open software platform, and a hardware security system. This is to be released in 2020, and if successful, will lead to a fully autonomous driving (Level 5) vehicle.

Currently, Alphabet [GOOGL] has bolstered themselves as the leader of autonomous driving. Waymo (Alphabet’s fleet of autonomous cars) can create 3D maps of objects up to three football fields away for the car to respond to using LiDAR and cameras. Their cars have only been released as a ride hailing service in Phoenix, AZ. However, with the help of 5G they could expand and have faster decision-making capabilities that will allow them to stay the leader in the race for autonomous driving.

Apple [AAPL] will benefit from the 5th generation technology. As mentioned above, they are one of the companies who have an agreement with Qualcomm for their microchips to be placed in their Iphones for the next several years. However, Apple has recently reached a deal to acquire Intel’s smartphone modem business. According to a reporter at The Verge, “Developing its own modems has the potential to deliver big benefits for Apple. It would allow the company to develop modem technology at its own pace, better integrate those modems with its products, and develop new features that set its devices apart” (Source: The Verge). In addition, Apple will no longer have to rely on other companies to have the advanced technology in their phones. “Analysts quoted by Bloomberg at the time suggested that Apple’s in-house modems could be ready in three years” (Source: The Verge).

Corning [GLW], along with their extensive fiber optic network, makes a strong and durable material known as Gorilla glass. It has been used in over 5 billion electronic devices such as smartphones, wearables, 3D sensing technology, and hologram reality devices. Corning has increased smartphone-related sales over the past few years with no signs of slowing down as 5G phones are released. Last year, Corning released Gorilla Glass DX and DX+ as they have focused more on wearables. In addition they have reached an agreement with Otterbox, a very well known phone case brand, to provide screen protector material. They also have an agreement with WaveOptics as they look to expand the augmented reality segment. (Source: The Motley Fool)

5G will also improve the world of virtual reality, a business that is expected to grow from $8.9 million in 2019 to $68.6 million by 2023 (Source: The VR Headset). 5G will allow for faster imagine processing, something Ambarella [AMBA] has been working on. They recently unleashed the H3 SoC (system-on-chip), a semiconductor chip that can deliver 120 frames per second (fps) significantly higher than an industry target speed of 90 fps. Partnered with the chip is wireless multi-sensing algorithms that aim to fully immerse the customer in their experience. With the power of 5G this could allow for instantaneous streaming of images and for pixelation almost indistinguishable to the human eye.

Axon Enterprise Inc. [AAXN] is a company that develops different types of technology for law enforcement and civilians, most highly known for the initial development of the taser. They have been working on wearables and in Oct. ‘18 they developed the first LTE-Enabled body camera for police. Not only does it stream live videos to other officers, but it can detect gunshots and send alerts, allowing police officers to be safe and equip themselves for the task ahead. With 5G, this process will allow for faster streaming with better image quality, and instantaneous alerts to keep them secure.

Appian Corp. [APPN] is a small-cap cloud computing business that focuses on low-code programming. Meaning they program simple personalized codes for businesses, and can add on as needed. The purpose of this is the ability of the company to solve digital problems faster than their competition, because of the low complexity of their software. Automation Anywhere (a robotic processing automation company) recently used Appian to design a code that allows them to quickly update the use of their robots to increase efficiency and performance. Coupled with 5G’s speed and decreased latency, low-coding will transform the speed at which companies can streamline their processes.

MicroVision [MVIS] is a laser scanning company for 3D sensing and image capturing. They have developed Consumer LiDAR (a 3D sensing engine) which is useful for home automation. It can deliver depth data which they can then use to build contextual maps of spaces as well as acquiring locations of tracked objects. Essentially, it acts as a substitute for a smart home assistants such as Alexa. With the engine, you can walk into a room and it will detect movement and automatically turn on lights, turn on a smart door lock, adjust your thermostat, etc. 5G will only allow for decreased latency as well as increasing consumer privacy by skipping cloud processing.

While 5G has many benefits, like any technology, it is still prone to failure. Generac Holdings Inc. [GNRC] is a small-cap eco-friendly backup generator company. 5G uses large amount of wattage that may not be able to be supported with the current infrastructure. Generac, however, will be able to keep everything running with their variety of industrial generators built to withstand power failures on a grand scale.

Outro

5G technology will be a paradigm shift in the way we live our lives. Many analysts believe it to start our 4th industrial revolution. While it may seem premature to consider which companies to invest in in preparation for 5G, it may be closer than you think. We expect these companies to show lasting growth over the next decade due to 5G.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.