Though 5G technology has been available since 2017, the networks became operational only last year. The technology provides faster wireless Internet access, with greater bandwidth and minimal delay.
As companies started transitioning to 5G technology, the U.S.-China trade war acted as a major impediment. But since the coronavirus outbreak has forced people to stay indoors, the demand for faster Internet connections has increased substantially. This is because people are spending more time now on the Internet to work, learn, shop and entertain. In fact, the pandemic helped accelerate digitization, increasing the requirement for connectivity and computing power.
In short, there has been a substantial rise in demand for infrastructure that powers the Internet worldwide. This has created an opportunity for firms dealing in server processors, graphic cards, fiber-optic connections, switches and more.
Better Infrastructure for Faster Speed
5G is considered to be way faster than 4G, with more network capacity and even better spectrum technology. This wireless technology has ample application in both consumer devices and businesses. It can benefit businesses across industrial IoT, remote health care, drones and robotics, autonomous driving, smart cities and more.
However, features like autonomous driving, IoT and advanced cloud computing cannot reach their full potential until 5G is available in every corner of the world. The widespread deployment of 5G in the coming years will have huge economic implications. In fact, 5G revolution is expected to equate to $13.2 trillion dollars of global economic output by 2035.
5G networks use mid-band as well as higher frequency airwaves, which require more equipment, cell towers and fiber-optic wiring than the previous generations. Hence, as demand for 5G grows, companies offering 5g technology infrastructure will also see a boom.
In fact, fiber-optic technology providers are major part of the 5G wireless network supply chain. Along with that, small cell radio antennas and radio access network equipment are required to link network to cloud computing infrastructure.
On the recipient side, smart phones and laptops also need to be upgraded to help users avail better and faster service. Smartphone chip maker QUALCOMM Incorporated QCOM had seen sales hitting $26.5 billion in 2014, with the release of 4G phones. The company now expects $175 million to $225 million worth of 5G handsets to be sold across the globe this year even amid the coronavirus crisis.
5 Stocks to Pick
Given the current progress in 5G rollout and coronavirus-led digitization, Internet infrastructure providers should enjoy a boom. Here are five stocks that can return well on investment.
MACOM Technology Solutions Holdings, Inc. MTSI is a developer of radio frequency (RF), microwave, and millimeter wave semiconductor devices and components. The shift to 5G would require rearranging base stations with massive multiple-in, multiple-out (or Massive MIMO) architecture. Each base station requires 5G-enabled RF antennas to provide better wireless performance without maxing out individual antenna power. Massive MIMO requires extra RF antennas that MACOM Technology manufactures, all the same, increasing its demand.
The company's expected earnings growth rate for the current quarter is more than 100% compared with the Zacks Semiconductor - Analog and Mixed industry's projected earnings growth of 89.3%. The Zacks Consensus Estimate for its current-year earnings has moved up 54.6% over the past 60 days. MACOM Technology sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Acacia Communications, Inc. ACIA develops, manufactures and sells high-speed coherent optical interconnect products. The company's expected earnings growth rate for the current quarter is nearly 31% against the Zacks Communication - Components industry's projected earnings decline of 6.8%. The Zacks Consensus Estimate for its current-year earnings has risen 18.7% over the past 60 days. Acacia Communications flaunts a Zacks Rank #1.
Apple Inc. AAPL a leader in mobile device manufacturing is expected to roll out 5G handsets by the end of this year. However, it faces strong competition from Samsung and Huawei and there may be delay in the company's typical iPhone rollout period in September, due to the coronavirus pandemic.
The company's expected earnings growth rate for the current year is 3.5%. The Zacks Consensus Estimate for its current-year earnings has moved 0.7% up over the past 30 days. Apple carries a Zacks Rank #2 (Buy).
Semiconductor giant NVIDIA Corporation NVDA offers graphics processing unit (GPU), which plays a major role in the mega transition. The traditional wireless signal processing is based on decade-old algorithms. However, to deploy 5G networks, the telecom industry is looking for potential solution in AI and deep learning, which is an area of expertise of NVIDIA.
The company's expected earnings growth rate for the current year is 29.5% against the Zacks Semiconductor - General industry's projected earnings decline of 15%. The Zacks Consensus Estimate for its current-year earnings has moved up 0.5% over the past 30 days. NVIDIA carries a Zacks Rank #2.
Telefonaktiebolaget LM Ericsson ERIC is a key player in the global 5G technology rollout. The company is helping telecom companies upgrade networks to new higher-speeds. In fact, the U.S. national security concerns surrounding direct competitor Huawei's technology lends advantage to Ericsson. The tech giant expects global 5G mobile subscriptions to be $2.6 billion by 2025, and 5G adoption to scale up faster than LTE, which was launched in 2009.
The company's expected earnings growth rate for the current quarter is 33.3% against the Zacks Wireless Equipment industry's projected earnings decline of 42.1%. The Zacks Consensus Estimate for its next-year earnings has moved up 3.3% over the past 60 days. Ericsson carries a Zacks Rank #2.
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