5G technology is transforming the way we communicate online, promising lightning-fast network speeds and infinite data.
In this new era, where internet connectivity and telecommunications wiggle their way into everything in society, it’s likely that we grow even more dependent on this technology in the future.
So rather than just consuming technology, why not use it to your advantage?
In this article, we’ll dive into the world of 5G stocks, exploring the companies poised to benefit from this emerging technology while also analyzing their qualities to help you make a more informed investment decision.
If you want to learn how to invest in 5G stocks, this list is the perfect place to begin your journey into the world of this cutting-edge technology.
What is 5G Technology?
5G technology is the fifth generation of wireless communication technology.
It enables a revolutionary kind of network that is designed to connect everyone and everything.
This includes our mobile networks and new use cases like self-driving cars, smart cities, artificial intelligence, machine learning, and more.
What’s more, 5G technology is propelling a wide range of industries into new stratospheres, including healthcare, transportation, and entertainment businesses.
As we continue to find even more uses for this cutting-edge tech, it will likely be adopted into nearly every aspect of our lives, thus cementing its place in society for many years to come.
How Does 5G Technology Work?
5G technology works by transmitting and receiving information using radio waves.
These radio waves are like invisible signals that can travel through the air and into your phone using the nearest cell tower.
When you compare it to outdated telecommunication technology (ex. 1G, 2G, 3G, and 4G), fifth-generation technology transmits these radio waves exponentially faster and with more power.
This means that you can download and use data in just a few seconds rather than taking a few minutes like it did in the past.
Moreover, 5G is capable of handling a lot more on its network without shutting down, which means that more devices can communicate with one another at once.
Overall, 5G technology has dramatically improved our digital world by making things a lot faster, more reliable, and more efficient.
This allows us to create and discover new and amazing things at an alarming rate.
The crazy thing is that we are already on the brink of making our next breakthrough in telecommunications technology (6G), meaning things will only become more efficient and productive in the coming years.
5G Stocks to Watch in 2023
Given the competitive nature of the 5G market, we needed a more stringent investment methodology to ensure that we selected only the best businesses of the bunch.
To do so, we evaluated over twenty 5G stocks, then selected the five best 5G stocks to keep on our watchlist.
When evaluating each stock, we considered the financial health, competitive strength, and market valuation relative to its intrinsic value while also considering each company’s role in the 5G industry.
Then, we compared the stocks against one another to determine which of them offered the best investment potential over the long run (5 to 10 years).
Overall, each of the companies listed demonstrated exceptional financial performance and reasonable valuations, thus making them worthy of further exploration.
Want more 5G? Check out these top fiber optic stocks.
Let’s get to the top 5G stocks to keep your eyes on.
Market Cap: $138.394 Billion
Qualcomm is a business that requires no introduction.
Through the development of wireless telecommunication products used in smartphones, tablets, autonomous vehicles, virtual reality, and more, the company has built a reputation as a key player in the 5G market.
With a heavy emphasis on developing next-generation technology, Qualcomm invests heavily in designing and manufacturing advanced microchips that enable 5G connectivity and other functionalities.
In addition, the company works closely with mobile operators and other partners to help deploy 5G networks around the world.
Qualcomm’s ability to innovate and introduce new technologies to the marketplace that are ahead of the curve makes it so special.
To ensure it remains in this spot, the company has built an extensive portfolio of patents and intellectual property, making it difficult for competitors to replicate Qualcomm’s success.
On top of that, Qualcomm offers end-to-end solutions, meaning customers only need to partner with them to satisfy their wireless communication needs.
From a financial point of view, few businesses can match Qualcomm’s success.
With an operating margin of 33.85% (TTM) and a return on equity of 78.69% (TTM), the business is a cash-producing machine that is capable of fueling growth for many years to come.
This is best demonstrated by its productivity over the past ten years, whereby Qualcomm achieved 10-year revenue, earning, and operational cash flow CAGRs (compound annual growth rates) of 8.74%, 7.79%, and 4.25%, respectively.
Plus, with a historically low price-to-earnings ratio of just 11.84, the company could be a steal at current market prices.
However, one thing to keep in mind is that it is a more mature business, meaning it may not be able to sustain the same growth in the future.
That being said, it’s still an excellent business and a smart play in the 5G market.
Market Cap: $259.958 Billion
Next up on our list is Broadcom, another semiconductor manufacturer whose solutions are designed and developed to support 5G technology.
This includes radio frequency front-end chips, wireless modems, networking chips, and other components critical to deploying 5G networks.
The company also offers infrastructure software solutions, like data center networking, cloud computing, and security software, that are intended to improve the performance and security of 5G networks.
Broadcom has established a strong relationship with a variety of customers in the enterprise market across more than 35 countries, including wireless carriers, equipment manufacturers, and enterprise customers.
It prides itself on working closely with its customers to understand their objectives and develop solutions that best meet their needs.
This forms a long-term, sustainable relationship, making it a profitable venture with no end in sight.
Not only that, but Broadcom is also a highly efficient company that prioritizes operational excellence by improving efficiency and reducing costs.
In doing so, the company has achieved staggering operating margins of 44.39%, while producing operational cash flows of $16.74 billion in 2022.
This is further illustrated by its incredible growth over the last 10 years, reaching revenue, earnings, and operating cash flow CAGRs of 30.24%, 34.88%, and 37.50%, respectively.
While it has a total debt position of $39.4 billion, Broadcom’s annual cash flows allow it to take on leverage without much cause for concern.
Given that it is trading near a historically low P/E of 20.98, it seems more than justifiable that $AVGO is a suitable investment candidate with many profitable years ahead of it.
All-in-all, it is difficult to go wrong with this pick.
Verizon Communications (VZ)
Market Cap: $166.344 Billion
There is a reason why Verizon is the telecommunications behemoth it is today.
With over 90% cellular coverage in the US, and operations in more than 180 countries, Verizon is one of the key companies involved in connecting America and an important player in the 5G market both domestically and abroad.
Through extensive investment in its 5G infrastructure, including both mobile and fixed wireless solutions, the company possesses one of the largest and fastest networks in the world.
This means that customers receive faster speeds, lower latency, and greater capacity than previous wireless technologies or compared to what competitors can offer (ie. T Mobile, Telus).
As a result, Verizon has capitalized on a large consumer base that is willing to pay large sums for its higher-quality services.
For example, the company made over $120 billion in revenues in 2022 alone.
On top of that, Verizon offers its own 5G-enabled smartphones allowing users to get the full Verizon experience.
This product and service mix creates a sort of stickiness, or switching moat, that can be highly advantageous for a business because it means that a customer is less inclined to change networks since all of their wireless devices operate on it.
Moreover, Verizon can offer a more cost-effective solution than most competitors, given its large economies of scale and the fully integrated nature of its network.
For these reasons, the company has achieved operating margins of 24.20% and a return on equity of 24.76%, despite being such a large and mature business.
However, one thing to pay attention to is its massive debt pile which amounts to more than $140 billion.
While Verizon did produce over $37 billion in operating cash flows, these will likely grow at a slower rate in the future due to how leveraged the company is.
As such, one should expect Verizon to be a stable and predictable 5G company but not necessarily a high-growth stock.
So, if you are looking for a more conservative play, $VZ is probably your best bet.
Skyworks Solutions (SWKS)
Market Cap: $17.703 Billion
Possibly the most interesting pick on our list, Skyworks Solutions is a semiconductor manufacturer that designs and develops a variety of applications, including wireless communications, automotive, aerospace, defense, and Internet of Things (IoT) devices.
With expertise in radio frequency technology, the company has been a key player in the 5G market, creating chips that are used in 5G infrastructure equipment and 5G-enabled mobile devices.
As demand for 5G technology has increased, Skyworks has capitalized by investing heavily in technological breakthroughs while also establishing partnerships with leading telecommunications businesses, including Broadcom, LG Electronics, and Motorola.
This, in turn, has solidified its position in the marketplace and provided it with one of the best financial positions out of all the companies on our list.
For example, Skyworks Solutions has been consistently growing its cash flows over the past 10 years at a rate of 17.46% per year, reaching $1.43 billion in operating cash flows in 2022.
Plus, with only $1.69 billion debt on its balance sheet, the business is more than capable of expanding its business and strengthening its competitive position further.
This is supported by its solid operating margins and returns on equity, which reached 27.84% and 21.77%, respectively, in the trailing twelve months.
Given that it’s trading at a historically low P/E of 15.17, Skyworks Solutions seems to be worth further consideration.
Ultimately, you can’t go wrong investing in a business with excellent financial health and a few durable competitive advantages, trading at a reasonable valuation.
Crown Castle (CCI)
Market Cap: $58.459 Billion
Last on our list, Crown Castle is a real estate investment trust (REIT) that specializes in the ownership, operation, and leasing of wireless communication infrastructure.
The company owns a wide variety of wireless infrastructure assets, including cell towers, small cells, fiber optic networks, and more.
Crown Castle prioritizes its investments in densely populated urban areas, providing the infrastructure needed to produce internet services and wireless networks.
What makes the company so special compared to other REITs is its concentration on the highly active 5G and telecommunications market rather than being overly diversified.
Since everyone living in a developed society requires internet access and wireless communications, the company can benefit from this highly sustainable demand.
What’s more, Crown Castle isn’t bound to any client since it can lease its infrastructure to whatever company is willing to pay top dollar for it.
That being said, the business does pride itself on building strong win-win relationships with its customers, thus allowing it to produce consistent and enduring revenue streams.
As a result, Crown Castle has grown its revenues at an 11.12% CAGR over the past 10 years, while achieving an impressive earnings growth rate of 29.32% in the same period.
Furthermore, the company produces an impressive operating margin of 35.23% and a return on equity of 21.33%.
However, one thing to keep in mind is that it is currently trading at a P/E of 34.82.
Though it certainly isn’t the most expensive stock in the world, especially considering where it has traded in the past, you should be wary of investing at its current price, unless you are confident that it will maintain this growth in the future.
Regardless, Crown Castle is an excellent business possessing a strong financial position and a knack for 5G infrastructure.
If you’re looking to invest in 5G and real estate, then $CCI is a stock that offers you the best of both worlds.
Why Invest in 5G
The 5G telecommunications industry is one of the fastest-growing markets in the world.
At a forecasted compound annual growth rate of 25.3%, the global 5G services market is expected to reach an astounding USD 331.1 billion by 2027.
Given its importance in modern economies as a new technology, it is no surprise why this is the case.
With 1.5 billion people expected to gain access to 5G by 2024, the demand for this essential technology will only expand further.
What’s more, 5G is playing an increasingly important role in the power struggle for global influence.
With China making up 49.4% of 2020’s worldwide investment, it can be argued that competing nations like the US will attempt to maintain power and control over this fundamentally important industry.
This means that capital will continue flowing into the top 5G players to continue to dominate the international market and maintain order worldwide.
For these reasons, as well as others, it’s likely that the telecommunications industry will remain a potent market in the years to come as companies and countries alike compete for the top spot in the 5G arms race.
Risks of Investing in 5G
Investing in 5G can be risky for a variety of reasons.
Here are the three most important risks associated with 5G stocks.
Deploying 5G infrastructure tends to be quite expensive, given the complex nature of the technology and the need to maintain it frequently.
What’s more, the telecommunications industry is constantly evolving, meaning that the next generation of telecom infrastructure is always just around the corner.
If telecommunications companies want to stay competitive, they must invest extensively in research and development so that they can be relevant in a highly competitive marketplace.
For example, North American 5G operators spent over $48 billion in capital expenditures in 2022.
The good news is that Statista predicts that CAPEX on 5G will peak at $50 billion by 2023, though it is expected to hover at or near those levels for the foreseeable future.
Cybersecurity risk is one of the most prominent threats associated with telecom companies.
Since all data is transferred via telecommunications networks, like 5G infrastructure, there is a heavy emphasis on the protection of the information it transmits.
If a 5G company were to experience a breach that severely undermines the integrity of the network, then it is very likely that not only the business’ stock performance takes a hit, but so will its operations as customers become hesitant towards storing and transmitting data with the company.
For this reason, 5G businesses spend large sums of money to ensure that their networks remain secure and operational.
If they didn’t, it is almost guaranteed that the company’s data would be hacked, meaning that millions of users’ highly sensitive data would be exploited.
Due to the highly sensitive nature of domestic data protection, it may be difficult for 5G stocks to expand their presence internationally unless the hosting country is closely aligned with the founded country.
This is best exemplified by the Chinese telecommunications company Huawei, which experienced a significant decline in global market share across multiple segments after the US expressed concerns over spying and security risks.
Given how tense geopolitical relations are at this time, it’s reasonable to assume that the number of 5G companies permitted to operate in a specific country will largely depend on their relationships with other countries.
As such, growth may be hampered by the number of countries willing to embrace its business.
Investing in 5G stocks gives investors the opportunity to own some of the best businesses in the world.
With strong financial positions, a rapidly growing market, and decent valuations. 5G stocks are ripe for the picking.
That being said, it’s always best to do your research to ensure that you make the best decision for yourself.
Even though we remain bullish on the picks that are listed, you never know what might happen in the stock market.
Therefore, if you want to guarantee that you succeed when investing, the smart thing to do is commit your time to learning the 5G industry and ensure that you only buy the stocks offering the most valuable opportunities.
That way, you can be confident no matter how the market behaves.
Overall, the 5G market is an excellent play that could help take your portfolio to the next level.