The best 5G stocks to own these days usually boil down to Apple (AAPL), a handful of chipmakers in the iPhone supply chain and a few consumer-facing companies. But Apple 5G plays won’t always be the only game. Soon, a multitude of other companies will stake their own claims to a new 5G frontier.
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What will follow this year’s expected “supercycle” in the consumer market? A range of tech companies are laying the groundwork for an even bigger venture than Apple 5G: technology applications for businesses.
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.
A number of tech companies have skin in the game when it comes to making 5G wireless successful in business-to-business services and web-connected industrial devices. Many also see a future for 5G in mobile edge computing — where processing and storage sit close to a data-generation source in manufacturing, health care, agriculture and other settings.
The names include Verizon Communications (VZ), AT&T (T), Amazon.com (AMZN), Microsoft (MSFT) and Alphabet (GOOGL).
“There’s good upside in consumer,” said Sampath Sowmyanarayan, president of Global Enterprise for Verizon’s business division. But he added, “5G was really made for business. (Improving) things like latency (network response time), security, power consumption — those capabilities didn’t exist before and businesses need to build new applications on them.”
Killer Consumer App Eludes 5G Stocks
Right now, though, the bulk of the action is in the consumer market. Many in the industry see a highly anticipated Apple 5G iPhone upgrade cycle gaining traction in 2021, after which investors will pounce on the company’s ecosystem on the consumer side, such as chipmakers Skyworks Solutions (SWKS) and Qorvo (QRVO). They still await the elusive “killer app” to emerge and drive Apple 5G smartphone upgrades.
“There are going to be new consumer applications happening, whether it’s augmented reality, VR or something else that nobody has predicted,” Sowmyanarayan told Investor’s Business Daily.
But in two or three years, that consumer Apple 5G “supercycle” likely will wind down. That’s when business upgrades will come into play through enterprise computing.
On the enterprise side, companies plan to build 5G ecosystems. Verizon 5G will be just one focus. Verizon and AT&T have ventured into cloud computing with Amazon Web Services, Microsoft Azure and Alphabet’s Google in 5G edge applications.
Suppliers of wireless network equipment will have a stake, including Ericsson (ERIC), Nokia (NOK) and Korean giant Samsung. So will information technology services companies like Accenture (ACN) and IBM (IBM). Others expected to help bring 5G to enterprise computing include software companies, data-center operators and commercial real estate companies.
5G Stocks In Private Business Networks
Samsung and IBM in December forged a 5G partnership. Nokia recently hooked up with Google’s cloud unit. Hewlett Packard Enterprise (HPE) and Dell Technologies (DELL) look to drive machine-oriented, edge computing applications.
Durga Malladi, senior vice president and general manager of 5G business at chipmaker Qualcomm (QCOM), told IBD that private 5G business networks will be key.
At the
recent virtual Consumer Electronics Show, Verizon and United Parcel Service (UPS) said they’re testing the use of 5G drones to deliver packages to a Florida retirement community.
“We’re starting to see the seeding of these private networks,” Malladi said. “All the necessary ingredients for private networks are being put together. The venue could be a corporate campus network or a manufacturing plant. You’re going to see a lot of proof-of-concept trials and business use cases.”
“But there are a lot of moving parts in an enterprise 5G private network,” he added. “You need devices, software and small cells in these pre-commercial trials. Someone has to put it all together. It could be a system integrator, like Accenture, that has relationships with the end customer, or a wireless service provider or someone else.”
The possibilities are countless. The critical 5G stocks to own a few years from now may well come from new wireless use cases in smart factories, warehouses, retail stores and health care, experts say.
How 5G Beats 4G Networks For Enterprise Apps
In many ways, 5G improves upon existing 4G wireless networks.
Consider ride-hailing firm Uber Technologies (UBER). Its mobile services wouldn’t have been possible without the location-finding capabilities of today’s 4G wireless networks.
But 5G networks will provide much more accurate locations in real time, says a Raymond James report. 5G networks will be able to pinpoint locations within a few square centimeters rather than a few hundred square meters. Also, denser 5G networks will connect to more industrial devices and low-cost sensors than 4G.
“5G can connect up to 1 million devices per square mile vs. up to 100,000 (devices) for 4G,” said a recent Oppenheimer report.
Improved latency, or network response time, is key for 5G networks. 5G networks reduce latency to a few milliseconds from lags of 50 to several hundred milliseconds for 4G networks. Robotics on factory floors, for example, require latency times below 5 milliseconds.
Experts expect other mobile edge computing applications to require latency processing in a range of 1 millisecond to 10 milliseconds.
Will Best 5G Stocks Achieve A Return On Investment?
The coming wave of 5G stocks is not without caveats, though. Wireless firms, in particular, need to find new revenue sources. Bidding in a recent U.S. government auction of midband 5G radio spectrum in January reached nearly $90 billion, well past estimates.
“We believe 5G is shaping up to have one of the worst returns on invested capital in the history of wireless,” KeyBanc Capital analyst Brandon Nispel said in a recent note to clients on the auction.
But UBS analyst John Hodulik says the wireless firms paying up for spectrum are looking beyond consumer smartphone applications.
“While still in the very early stages, the carriers appear to believe the enterprise market will be one of the first 5G monetization opportunities,” Hodulik said in a report to clients.
He added: “Verizon expects 5G enterprise to be a meaningful revenue driver in 2022. With improved network capabilities, we believe T-Mobile (TMUS) will make inroads in penetrating the business market.”
For 5G Stocks, Competition Looms With Next-Gen Wi-Fi
Companies see private 5G networks as well-suited for controlling robotics and remote devices such as drones. They’ll also provide real-time monitoring of assembly lines, or even oil-and-gas infrastructure, and connect to millions of low-cost sensors.
Qualcomm is working with automakers. Malladi says 5G will provide improved telematics for software upgrades to infotainment and safety systems.
“We’re seeing a lot of interest in health care to monitor devices, to monitor patients remotely,” Sowmyanarayan said of Verizon 5G. “More manufacturing is coming back to the U.S. and advanced robotics on the factory floor will be part of that. And post-Covid, retail is going to be re-imagined.”
Experts see some enterprise settings, such as smart factories, using private 5G networks to battle next-generation Wi-Fi systems. The Federal Communications Commission freed up more public airwaves for Wi-Fi 6 services, the latest, most high-powered version of Wi-Fi.
Wi-Fi 6 nearly triples data speeds while also boosting support for more device connections.
But 5G networks tap higher frequency spectrum to boost data speeds beyond those of Wi-Fi 6.
In many cases, analysts expect 5G wireless to win out over Wi-Fi. That’s due to better reliability, security and network response times. For example, they say autonomous vehicles on the factory floor would be less likely to stop dead when losing a signal.
“There are different use cases,” Sowmyanarayan said of Verizon 5G. “On the factory floor, where you have a thousand robots running around welding stuff, you want to put 5G there. You want really high quality of service, dedicated spectrum and managed services.”
Network Splicing, Latency And The Best 5G Stocks
On the other hand, he added, “If you go to a retail store and someone wants to quickly play a game of Fortnite while mom shops, Wi-Fi will work for that.”
One key is that 5G networks parcel out bandwidth with “virtualization” software. With “network slicing,” a 5G network divides into several virtual networks for different needs and uses. While one business service requires low latency and reliability, another application utilizes superfast 5G data speeds.
“The key service that wireless operators can offer enterprises is network slicing, which creates end-to-end virtual networks designed for specific uses (and) cases,” Oppenheimer analyst Tim Horan said in a recent note.
In May 2020, T-Mobile and Microsoft launched the Seattle-based 5G Open Innovation Lab. Founding partners include Dell, Intel (INTC), VMware (VMW) and Amdocs. The 5G Lab is working with startups to develop “digital transformation” apps using artificial intelligence, augmented reality and edge computing.
Mobile edge computing will utilize several 5G capabilities, including low latency and network splicing. Verizon 5G concerns partnered with Amazon Web Services and Microsoft to build edge computing infrastructure. AT&T has teamed with Google.
Juniper Research sees spending to enable edge computing rising from $2.7 billion in 2020 to $8.3 billion in 2025. Analysts expect 5G networks to connect to low-cost sensors in manufacturing, transportation, agriculture, logistics centers, mining environments and utilities.
Meanwhile, computer security will adapt as industrial devices connect to 5G networks. Cybersecurity firms such as Palo Alto Networks (PANW) and Fortinet (FTNT) are focused on 5G-related security.
5G Stocks And Autonomous Vehicles
Still, there are hurdles.
Many pundits touted autonomous vehicles as a big driver of 5G usage in urban areas. Apple 5G may come into play here with its upcoming Apple car. But deployment of self-driving vehicles on public streets and roadways is still far off.
One recent survey showed business executives want to assess the return on investment of 5G pilot projects before making investments.
At Wells Fargo, analyst Eric Luebchow says the enterprise market will take years to evolve. But he considers it an important growth avenue in the long run.
“In our view, it is difficult to see the wireless carriers benefiting significantly in the near-term from consumer revenue contributions related to 5G,” Luebchow said in a note.
“We do believe that 5G’s capabilities around throughput and low latency will enable new application functions across sectors including health care, manufacturing, agriculture, retail, transportation and smart cities,” he said. “Many of these applications will come from Internet of Things devices including machines, sensors and cameras.”
Follow Reinhardt Krause on Twitter at @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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