5G Industry in 2022: The Complete Investors Guide

It might surprise you to know that on average, Americans spend 5.4 hours every day on their cell phones.  We use them as alarm clocks to wake up in the morning, to take pictures and videos, send emails, text friends, play games, and even make phone calls (from time to time).

They have become an essential tool in our lives, and they are only going to become an even more significant part as the mobile industry is about to be upended by the “5G Revolution”. 

What is 5G?

5G is an abbreviation for the fifth-generation for cellular networks. Wireless technology has been evolving for quite some time. If you're old enough to remember, the original cell phones in the 1980s were as big as your head. These originals ran on first-generation technology or 1G. Using cell phones back then was a luxury that not everyone could afford, as many phones cost upwards of $3,000.

In the following decade, the technology advanced to 2G. Cell phones got more affordable and this was when it became common for many businessmen and women to have cell phones that could fit in their pockets. The biggest update to the technology was the ability to send texts. 

The third generation, or 3G, was adopted in the early 2000s. Cell phones got even cheaper and as a result, a large percentage of the population was able to own one.  These cell phones had more features than their predecessors, such as larger color screens, data transfer, and most importantly, access to the internet.  Before this, you weren't able to use your phone to surf the web or watch videos.  This was also when smartphones really took off. You could access the internet, send emails quickly, and your phone's screen started to look more like a computer.

The current generation, 4G, has been the standard for the past decade. 4G was superior to 3G in that it increased the speed to access the internet, videos streamed faster, and data transferred more quickly.  However, large amounts of wireless data are being transferred nowadays, which is a challenge for the 4G network. It's not just cell phones that people rely on anymore; it’s tablets, e-readers, smart devices (like Amazon's Echo and Google’s Home products), and even kitchen appliances. This means that the amount of bandwidth required is continuously increasing and users want to access large amounts of data at lightning-quick speeds. That's why there is a need for 5G.

5G technology was initially released in 2018 but is not widely available yet. The reason for this is that signals in 5G are transmitted using shorter frequency waves. This enables more data to be transmitted and more devices to be connected, resulting in faster speeds than 4G.

But these signals cannot travel extremely far. They also can't travel through mountains or buildings and are even affected by rain and clouds. Instead of using large towers sporadically placed as all previous wireless technology did, there needs to be a lot of small base stations created. 

Why is 5G Important?

5G is expected to be at least ten times as fast as 4G. Think about it. The average download speed of 4G is 14MBPs. The average download speed of my cable internet is around 92. If 5G is ten times faster than 4G, it will be much faster than cable internet. That means the internet speed of a phone in your pocket will even be faster than your computer's internet. You will be able to download two-hour movies in seconds. But the benefits 5G offers isn’t just for cell phones.

5G will enable artificial intelligence applications to process data from connected devices in real-time. It will allow autonomous vehicles to communicate with each other. Surgeons will be able to perform procedures remotely through a robot. This doesn't just affect how fast our phones will be; it will power the Internet of Things (IoT) and change our way of life. That's why it's called the “5G Revolution.”

Investing in 5G

Even though 5G is not expected to be available worldwide until 2025, investors are positioning themselves to take advantage of this new technology and the profits it will create for select companies. This is evident by the impressive gain for the Defiance 5G Next Gen Connectivity ETF (FIVG) since inception.

There are five main industries within the 5G ecosystem:

1. Equipment and Infrastructure. This is basically the hardware needed to keep the data going. As mentioned earlier, more base stations will be required, and they will need to be connected to the internet. There will also be a need for antennas, switches, routers, data centers, and high-end cables. These are all part of the infrastructure and equipment industry.
2. Semiconductor Manufacturers. All networks require chips and semiconductors. These chips are needed for base stations, 5G smartphones, and other types of devices. The chips calculate data and execute commands. 
3. Mobile Network Providers. These are the companies that provide service for our phones, such as Verizon (VZ) and T-Mobile (TMUS).
4. Real Estate. This is the backbone of 5G. These are companies that build and own cell phone towers and base stations. They then lease the base stations to the network operators. They also run fiber-optic networks to connect 5G sites to the internet. 
5. Mobile Handset Manufacturers. These are companies that make phones, such as Apple (AAPL) and Nokia (NOK).

While the FIVG ETF provides broad exposure to the industry, investors should consider buying individual stocks that could significantly increase the upside. The best way to evaluate these stocks is through our POWR Ratings service. Below is a list of some of the leading 5G stocks.

5G stocks to Own in 2022

Qualcomm Inc. (QCOM)

QCOM develops and licenses wireless technology and also designs chips for smartphones. The company is a big player in producing chips for 5G phones, which is not surprising as the company provided chips for the 3G and 4G networks. Its chips enable 5G communication in smartphones, modems, and IoT devices that link to cars.

The company also has a patent business in which it collects licensing fees from other companies to use its wireless technology patents. QCOM has a chipset supply agreement with AAPL, where AAPL will likely license the chips directly from QCOM instead of relying on Original Equipment Manufacturers. QCOM also has a new patent license agreement with Huawei.

QCOM is poised to benefit due to strong momentum in the handset space, driven by the ongoing shift to 5G. The company has an overall grade of B, indicating a Buy rating in our POWR Ratings system. The company also has a Quality Grade of B, which isn't surprising due to its past and forecasted earnings growth. Over the past year, QCOM's earnings were up 74% and are expected to rise 25.6% in 2022.

The stock also has a Sentiment Grade of B. 12 out of 21 analysts covering the stock have a Buy rating. They also have a consensus price target of $122, implying about 22% upside. Click here to see the complete ratings for QCOM.

Skyworks Solutions, Inc. (SWKS)

SWKS is another chipmaker as it produces semiconductors for wireless handsets, and other devices are used to enable wireless connectivity. Its focus is on high-performance analog semiconductors, which are crucial to many 5G technologies. The company has already benefited from increased demand for mobile internet applications as more people than ever have smartphones, notebooks, and tablets.

But the deployment of 5G is where the company will shine. Management noted in its recent conference call that “The momentum in global 5G carrier subscription is building with estimates of 580 million users today, expanding to more than 3 billion users by the end of 2025.” It counts AAPL and Samsung as its customers, so the growing sales of 5G devices will filter down to its bottom line. 

SWKS should be able to expand its addressable market as mobile customers transition to 5G. The company has an overall grade of C or a Neutral rating in our POWR Ratings system. SWKS is ranked #68 in the Semiconductor & Wireless Chip industry, and that industry has a grade of A. For more top stocks in the Semiconductor & Wireless Chip industry, click here.

Analog Devices Inc. (ADI)

Analog Devices is a leading analog, mixed-signal, and digital signal processing chipmaker. The firm has a significant market share lead in converter chips, which are used to translate analog signals to digital and vice versa. This makes it a prime player in 5G. A 5G base station requires eight times more channels than a 4G base station to process a signal for wireless phone transmission. ADI provides that signal.

ADI dominates the 5G signal with approximately 70% market share, which is only 25% of its business. ADI also has a leading position in the digital signal processor market. The company has a deal to acquire Maxim Integrated Products. This should strengthen its presence in the chip industry and drive growth in emerging markets. It will also expand the company's addressable market in the industrial and automotive space.

The company is poised to benefit long-term from 5G adoption and the demand for optical connectivity products from wireless carriers and data center providers. ADI has an overall grade of C, indicating a Neutral rating in our POWR Ratings system. It also has a Sentiment Grade of B, which is consistent with the bullish attitudes of Wall Street analysts with 14 out of 17 rating it a Buy. The consensus price target is $208, implying a 33% upside. If you're interested in viewing ADI's other component grades, click here. 

Ericsson (ERIC)

ERIC is a top pick in the equipment subsector. The company sells hardware, software, and services primarily to communication service providers while licensing patents to handset manufacturers. This provides it with two revenue sources, product sales and royalties.

ERIC has 122 commercial 5G agreements and provides 5G equipment to networks in 40 countries. This includes China's massive market and makes the company a leader in 5G base station equipment, including antennas, radios, and software. ERIC is also the world's largest supplier of LTE technology. It has a significant market share and has established many LTE networks around the world.

The stock is rated a Buy, with a grade of B in our POWR Ratings system. B-rated stocks have posted an average annual performance of 20.1% which is 2.5x the S&P 500’s average annual performance of 8%. 

ERIC also has a Value Grade of A. For a company in a high-growth industry, ERIC’s stock can still be bought on the cheap. That's because it has a forward P/E of 14.9. The stock also has a Price to Sales ratio of 1.7, well below its industry average. ERIC is also in a C-rated industry, Telecom – Foreign, and is ranked #6 in that industry. For more top stocks in the Telecom – Foreign industry, click here.

Apple Inc. (AAPL)

My last pick is a mobile provider, and what better mobile stock to buy than AAPL. It is one of the largest companies in the world and the biggest name in consumer technology. Most importantly, though, its latest iPhone was a 5G model, and it's selling like hotcakes. 

The phone has also made inroads into China, as the iPhone 12 and 13 have sold better than expected in the country, bringing its market share to over 30%. AAPL's services segment is also performing exceptionally well with over 25% growth in Q4 of last year. This is particularly positive as it’s leading to higher gross margins for the company.

In terms of the POWR Ratings, Apple is currently rated a C which translates to Neutral. Apple has a B for Sentiment. This is due to Wall Street analysts having a nearly unanimously positive view of the stock as 24 out of 29 analysts covering the stock have a Buy rating. It’s also not surprising that the stock has a B for Quality given that it’s a leading company in a massive market - smartphones - and it also has numerous, smaller revenue sources, where the company has a competitive advantage.

We also provide Growth, Value, Momentum, and Stability grades for AAPL. The company is in the Technology – Hardware industry, which is also C rated. For more top stocks in that industry, click here. 

AAPL shares were trading at $172.99 per share on Tuesday afternoon, down $1.79 (-1.02%). Year-to-date, AAPL has declined -2.58%, versus a -5.19% rise in the benchmark S&P 500 index during the same period.

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.

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