The best 5G stocks will evolve over time as business services delivered via cloud computing infrastructure usurp consumer applications.
XInvestors should look for updates on company earnings calls as more smartphones, laptops, autos and internet-connected industrial devices use 5G technology.
IPhone maker Apple (AAPL) always merits consideration as a 5G stock. The consumer electronics giant recently introduced the iPhone 14, which supports new radio frequency bands. September quarter earnings for AAPL stock are due Oct. 27.
Meanwhile, the supply chain of Apple stock is a seasonal and cyclical opportunity for investors eyeing 5G stocks.
Semiconductor stocks offered an early play on 5G wireless and remain an opportunity. Investors have been cautious on 5G network gear makers and other infrastructure plays, like cell-phone tower operators.
Cloud Computing, 5G Wireless Synergy
In the long run, 5G wireless services delivered to businesses via cloud computing giants like Amazon.com (AMZN), Microsoft (MSFT) and Alphabet's (GOOGL) Google could offer the best 5G stocks. Many startups are active in "edge computing." Cloud computing infrastructure is expected to play a big role in deploying 5G wireless services.
"Over the past few years, the major telecommunications operators have all signed partnerships with the top cloud stalwarts to help provide greater network efficiency, reduced latency, and faster speeds in improving the entire 5G ecosystem," said Wedbush analyst Daniel Ives in a report.
He added: "The opportunity for cloud providers arises from edge computing, which is putting data processing power closer to customers' devices for better performance. "As the push for 5G continues throughout the country, there is clear a multi-billion-dollar opportunity for cloud providers to win."
Research firm Dell'Oro projects that 5G workloads on the public cloud will grow revenue at an 88% compounded annual growth rate from 2022 to 2026. Over that period, Dell'Oro estimates cumulative revenue at $4.6 billion.
Gartner forecasts that 5G smartphones will reach 547 million shipments in 2022, up from 246 million shipments in 2021. In the September quarter, 82% of all new handsets shipped globally provided 5G connectivity, said a Susquehanna report.
5G Stocks: Smartphone Outlook Lowered
Shares in Keysight Technologies (KEYS) popped on its fiscal third-quarter earnings report. Keysight makes 5G network test gear.
T-Mobile US (TMUS) reported second-quarter postpaid phone subscriber additions that topped expectations. TMUS stock holds the most 5G wireless spectrum among U.S. service providers.
Chipmaker Qualcomm (QCOM) reported mixed fiscal third-quarter results. Amid slower consumer spending in China, Qualcomm reduced its worldwide 2022 5G smartphone unit forecast to 650 million to 700 million vs. its earlier estimate of 750 million.
Qualcomm makes chips built into 5G phones. It also has been a leader in software platforms to develop 5G apps. It appears that Qualcomm will continue to sell Apple 5G modem chips near-term.
Qorvo (QRVO) on Aug. 3 lowered its 2022 5G mobile handset forecast again to 625 million from a range of 650 million to 675 million units on lower global demand, particularly from the Android market.
"September quarter revenue (guidance) still holds together as Android weakness is somewhat masked by traditionally strong shipments into Apple," said a Susquehanna report.
Diode (DIOD) on Aug. 4 pointed to strong 5G demand on its earnings call.
During its Capital Markets Day, GlobalFoundries (GFS) called out 5G as a driver for its contract manufacturing business. Taiwan Semiconductor Manufacturing (TSM) holds a similar view.
5G Stocks: Capital Spending To Jump In 2022
South Korea and China lead in 5G network coverage while Europe lags.
Analysts expect 2022 to be a big year for capital spending by U.S. wireless service providers. Some 5G stocks should get a lift as telecom firms ramp up spending on those networks.
Led by T-Mobile, wireless firms in the U.S. are deploying 5G wireless services using high-performance, midband radio spectrum. Verizon Communications (VZ) and AT&T (T) are playing catch-up and will spend the most in 2022 and 2023.
Meanwhile, Dish Networks (DISH) turned on its first 5G market, Las Vegas, on May 4. Dish, primarily a pay-TV service provider, played up its 5G strategy at an investor day on May 10. Rising interest rates pose an issue for DISH stock. The company still needs to obtain financing to build out its 5G network, analysts say.
In addition, Dish and Elon Musk's Starlink continue to battle over how high-frequency 12 GHz spectrum can be used. Starlink, a satellite broadband service, contends the spectrum cannot be shared while Dish says it can.
The Federal Communications Commission will decide.
Best 5G Stocks: Multi-Year Boom For Chipmakers
Smartphones currently drive most demand for 5G chips.
Research firm Omdia forecasts that by 2026, 40% of all mobile subscriptions will be 5G, totaling 4.8 billion. In addition, annual 5G mobile service revenues are expected to reach $540 billion worldwide by 2026, representing 60% of revenues.
With China's market already highly penetrated, Barclays expects India to be the fastest growing market for 5G smartphones from 2022 through 2024.
Aside from Qualcomm, other companies that make chips built into smartphones include Qorvo, Marvell Technologies (MRVL), Skyworks Solutions (SWKS) Cirrus Logic (CRUS) and Analog Devices (ADI).
Naysayers still question the return on 5G investment for telecom companies. They point to the lack of a 5G "killer app" for consumers.
"We do not expect material revenue increases in the global telecom sector from 5G in the 2022 to 2025 period," credit rating agency Moody's said in a recent report. "While the revenue picture remains uncertain, 5G still requires significant investment."
"So far, a true 5G killer app has yet to emerge, which reduces the potential for revenue growth," added Moody's. "Indeed, it has become apparent that the most compelling use cases for 5G revolve around businesses rather than residential consumers."
Some telecom firms, such as Verizon and T-Mobile, view fixed 5G broadband to homes as a money maker. 5G broadband to homes could pose a threat to cable TV companies such as Comcast (CMCSA). Cable TV firms currently dominate in high-speed internet services.
Global revenue generated by wireless firms from 5G broadband to homes and businesses will jump to $2.5 billion in 2023 from $515 million in 2022, forecasts Juniper Research.
Enterprise Market Could Be Revenue Driver
A wide range of tech companies are building 5G ecosystems for private networks that deliver business-to-business services. Telecom industry group 5G Americas forecasts that the addressable market to incorporate 5G into private business networks will jump sharply over the next five years, to $16.9 billion in 2025 from $1.9 billion in 2020.
In many industrial settings, 5G infrastructure is expected to displace Wi-Fi-based services.
"While private 5G is still a relatively niche offering, it is fast becoming one of the most competitive segments with equipment vendors like Ericsson (ERIC), telecom operators like Verizon and AT&T, all major cloud providers and even some smaller startups all having live offerings," Barclays analyst Kannan Venkateshwar said in a note to clients.
He added: "This opportunity has largely grown out of possibilities created by greater virtualization of telecom networks, as well as more flexible network architectures made possible by 5G standards."
Pundits expect 5G wireless to have a role in manufacturing automation, cloud gaming, autonomous vehicles, drones and remote health care services.
"Enterprise solutions could be the largest 5G revenue drivers, including factory and manufacturing, with telemedicine and health monitoring also new drivers," Raymond James analyst Ric Prentiss said in a note.
In time, the breadth of 5G stocks will expand. The future of 5G wireless lies in the industrial Internet of Things, remote health care, drones and robotics, autonomous driving, smart cities and more.
5G Wireless: Higher Frequency Airwaves
For some 5G stocks, the long-term opportunity will be tied to new networks that blur the line between mobile and fixed-line infrastructure.
Some chipmakers sell into the 5G network gear market. They include Marvell, Broadcom (AVGO), Intel (INTC), Texas Instruments (TXN) and Analog Devices. Meanwhile, Xilinx (XLNX) makes programmable chips built into prototype network gear.
Initially, 5G networks will utilize higher frequency airwaves in urban areas. As a result, they require more equipment, more cell towers and more fiber-optic wiring than previous generations.
Makers of fiber-optic technologies also are part of the 5G wireless network supply chain. 5G networks will require "small cell" radio antennas, radio access network equipment as well as links to cloud computing infrastructure.
The global 5G radio access market will jump to $21 billion in 2024, up from less than $4 billion in 2019, research firm Omdia forecasts.
Further, 5G also is a long-term opportunity for network gear makers Ericsson, Nokia and Samsung.
Cellphone tower operators American Tower (AMT), Crown Castle and SBA Communications (SBAC) also could get a 5G boost, analysts say. Crown Castle will be a 5G infrastructure partner of Dish Network.
5G Networks Require Fiber-Optic Technology
5G networks will connect to fiber-optic networks for "long haul" purposes. That will provide reliability for emerging automotive, robotics and medical applications. Potential 5G stocks to buy include Corning (GLW), Ciena (CIEN) and other fiber-optic players.
Crown Castle makes "small-cell" radio antennas for 5G services in urban areas. The small-cell antennas — hung on utility poles or building rooftops — will require fiber-optic connections to local hubs. Local government approval, though, is required to expand 5G networks.
Rysavy Research projects that there will be 1 million U.S. outdoor small cells by 2028, up 10 times from today's levels.
5G networks also will improve latency, the lag time it takes networks to respond. That's crucial for applications such as autonomous driving, remote telemedicine and factory automation. 5G networks reduce latency to a few milliseconds from lags of 50 to several hundred milliseconds.
How 5G Wireless Will Change Cloud Computing
Edge computing deploys data processing, storage and networking close to sensors and where other data originate, near the "edge" of the network. The goal is to process and analyze data locally in real time rather than send it to faraway data centers in the internet cloud.
"The advent of 5G should mean the rollout of many new technologies we certainly haven't yet imagined," economist Ed Yardeni said in a recent report. "To make them possible, the tech gurus are saying that cloud computing will move from a cloud server far away to equipment on the edge of a neighborhood's network. Edge computing should continue to increase the speed of data transmission, but carriers will have to open their wallets to make it happen."
Microsoft is selling global network transport and routing services to 5G network operators. Microsoft calls the initiative "Azure for Operators." Microsoft purchased AT&T's network cloud business.
Wireless Firms Find Cloud Partners
Amazon Web Services and Google are also selling 5G-related cloud infrastructure services. AWS in December announced plans to sell private 5G network services to enterprise customers.
The AWS "5G in a box" service initially will use shared "CBRS" spectrum. In the long run, Amazon could partner with Dish for a 5G network, analysts speculate.
Verizon has partnered with AWS, Google and Microsoft to develop 5G cloud services.
Edge computing should be a big opportunity for chipmakers Nvidia and Intel, some analysts say. Nvidia and Intel are the biggest providers of data center processors for cloud applications.
Mini data centers in neighborhoods will link to cloud-computing infrastructure. Nokia and Ericsson are developing 5G cloud gateways.
Dell Technologies (DELL), Hewlett Packard Enterprise (HPE), Nokia and others aim to capitalize on edge computing.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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