The 5G revolution is upon us.
The fifth and latest generation of wireless networking is up to 100 times faster than 4G. This technology will make mobile data faster and help drive next-gen applications such as artificial intelligence (AI) and the Internet of Things (IoT).
While 5G has already generated substantial gains for some stocks, this technology will change the world over the next few years, generating long-term gains for many 5G-related stocks. 5G networks are already up in some U.S. cities, but it’s not widespread yet.
We should start to see 5G infrastructure spread beyond cities by next year. But the buildout should last through 2025, when the vast majority of the U.S. will be covered.
Today, I’ll explain what 5G is and how it will make data speeds faster and communication easier. I’ll also reveal three 5G stocks that offer the best potential for gains over the next few months.
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What is 5G?
5G is the term for the newest (5th generation) mobile network standard. It delivers higher data speeds, increased reliability, larger network capacity, and ultra-low latency.
It uses signals with a higher frequency than the current 4G standard, which allows the transmission of more data and more devices to be connected to the network. In other words, 5G networks will help connect more people—and more devices—all across the world.
5G is a big step forward for trends like IoT. This massive trend describes a world in which millions of devices (not just phones) are connected. For example, you can already turn off the lights or lock your front door using devices like the Amazon Echo.
Keep in mind, this trend is still in its early days. Within a few years, 5G may even allow autonomous vehicles to speak to each other, helping prevent crashes.
Why invest in 5G stocks?
As I mentioned earlier, 5G uses higher-frequency waves, which means the signals can’t travel nearly as far as 4G signals. Instead of the large towers that powered previous generations, 5G networks need many small base stations. That’s why it’s taking so long to roll out the technology.
But this longer “runway” provides an opportunity for investors. If a worldwide 5G network could be turned on instantly today, the industry growth would already be priced into the stock market. But since there’s so much work that still needs to be done, companies in the industry have significant long-term growth potential ahead.
Many different companies are poised to benefit from the 5G rollout, including mobile phone makers and carriers, chipmakers, and infrastructure providers. Plus, President Biden recently unveiled a $2 trillion infrastructure plan that should benefit the entire 5G industry. The stocks of wireless carriers, device makers, and infrastructure providers offer significant growth potential for investors over the next decade.
5G will help drive a number of exciting new growth trends, including self-driving cars, virtual reality, enhanced sights and sounds, and even remote surgery. Over time, it will replace home broadband access… and eventually play a role in almost every aspect of the economy.
That’s why it’s one of the biggest growth trends in the world today.
When it comes to investing in the 5G buildout, here are my three favorite stocks to consider…
T-Mobile US, Inc. (TMUS)
If you live in the U.S., you’ve probably seen commercials for T-Mobile. The company offers mobile voice, messaging, and data services in the postpaid, prepaid and wholesale markets. It also sells wireless devices, such as smartphones and tablets.
T-Mobile grew even larger with its recent acquisition of Sprint, which brought its size up to its rivals like Verizon (VZ) and AT&T (T). With the Sprint acquisition, T-Mobile aims to build the largest and fastest 5G network in the U.S. Its Extended Range 5G service covers 287 million people, while its faster Ultra Capacity 5G has the ability to cover 125 million people with Ultra Capacity 5G phones.
The company is also preparing to launch a new 5G home internet service. This service includes average download speeds of approximately 300 Mbps—putting the company in direct competition with internet providers like Comcast/Xfinity (CMCSA) and Charter Communications (CHTR). As I mentioned earlier, 5G can replace home (wired) broadband services, which could open up a huge new growth market for T-Mobile.
Thanks to its expansion, T-Mobile is one of the fastest-growing companies in the 5G space. Analysts expect the company to report 70% year-over-year (YoY) sales growth when it announces first quarter (Q1) results this week. In addition, T-Mobile’s earnings are expected to grow an average of nearly 35% a year over the next five years, which blows away its rivals.
This growth profile makes T-Mobile a stock that belongs in every investor’s portfolio.
Ericsson is a leading telecommunications equipment supplier that sells hardware, software, and services to telecom service providers. It also licenses patents to handset manufacturers. The company has 136 commercial 5G agreements with service providers, covering 85 5G networks in 42 countries.
Ericsson is currently the world’s largest supplier of LTE technology, the standard for 4G networks. The company is now focusing on 5G system development and has undertaken many initiatives to position itself as a leader in 5G. The company’s Radio System allows operators to launch and grow their 5G coverage quickly. And its Spectrum Sharing allows for accelerated 5G rollouts using existing hardware. Ericsson has been gaining market share and driving revenue growth as it continues to build 5G networks, especially in China.
The company will also benefit as the IoT trend develops over the next few years. The more IoT devices there are… the more demand for Ericsson’s equipment. The company will also benefit by selling services to help simplify and manage complex networks as IoT connects millions of devices to 5G networks.
The licensing revenue from 5G handset sales should also increase Ericsson’s profitability. Based on its latest quarterly results, Ericsson raked in $1 billion in licensing revenues, about 12% of its total sales. While it’s not a big part of the company’s sales picture, licensing revenue creates no new costs for Ericsson. In other words, these licensing deals are nearly 100% profit for the company.
Analysts expect Ericsson to grow its earnings around 40% YoY next quarter. That’s a fantastic growth rate for a stock trading at less than 20 times (20x) forward earnings. Shares of Ericsson offer an attractive combination of growth and value.
AT&T Inc. (T)
AT&T is the third-largest wireless service provider in North America, behind Verizon and T-Mobile. It offers a wide range of communication solutions, including wireless, long-distance, data/broadband, internet, and cloud-based services. While the company is benefitting from the recent growth of its HBO Max streaming service, I believe its biggest growth potential comes from 5G over the next few years.
As the first 5G carrier in the industry, AT&T has created a seamless transition to 5G from the previous wireless technology. The company plans to deploy its 5G+ service in public areas like arenas and stadiums. It also plans to launch 5G+ in seven airports. 5G+ is AT&T’s name for 5G delivered using millimeter wave spectrum, which is ideal for high-traffic areas.
The company recently reported $43.9 billion in revenue for the first quarter of 2021, which handily beat Wall Street estimates. AT&T continues to grow its customer base. It added 595,000 post-paid wireless phone customers last quarter. That’s a decent increase to its existing subscriber base, which totals over 170 million customers. AT&T’s massive customer base gives it a valuable market to sell new 5G products into, which should boost revenue growth over time.
AT&T has less growth potential than TMUS and ERIC, but its stock is trading at a bargain valuation right now—just under 10 times (10x) forward earnings. For a company poised to benefit long-term from 5G, it’s a great value pick for the 5G boom.
5G technology will change the world, making it faster and easier for people to communicate. It will power next-generation technology trends like IoT… while expanding internet access to places that don’t currently have it. 5G stocks have already started to see massive gains, but the uptrend is just beginning.
The three companies I mentioned above will all benefit from their investments in 5G. T-Mobile and AT&T are two of the biggest wireless service providers in the U.S., and both will benefit as 5G technology allows them to diversify their product offerings and boost their sales growth. Ericsson is a dominant player in the telecom equipment industry and should benefit as millions of devices connect to each other.
As the telecom industry builds out the infrastructure needed to expand 5G coverage, these three stocks should see their shares rise over the next few months… and beyond.
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