Some ideas are so big they open up a new sector for investors. That’s the case with 5G technology. “How to Invest in 5G” is a common theme by investing gurus.
But investing in 5G is not the same as investing in tech stocks, or even specific niches like entertainment stocks, or streaming stocks. In fact, investing in 5G stocks is like investing in all of the above and then some. That’s because this “fifth generation” of wireless technology is more than just faster speeds and improved latency between devices.
And now that it has arrived, it is opening up a variety of opportunities for investors. But like all opportunities, not all 5G stocks are the same.
In this article we’re going to define what 5G is and the opportunity that it creates for investors. We’re also going to highlight some of the many sub-sectors that can allow investors to profit from 5G either as pure plays or as derivative investments.
What Is 5G Technology?
Before you start committing your investment capital to buy 5G stocks, it’s important to know what you’re investing in. If this is basic for some of you, feel free to skip ahead. But this will help get all the readers up to speed.
5G stands for the “fifth generation” of wireless technology. A key term to understand in terms of 5G is latency. This is the time it takes for a device to make an input for data (a request) and the network’s response. Every generation has narrowed the latency between this input and response.
This latency presents itself to consumers as increased speed. But in this case, it’s faster speed that will help drive growth in emerging fields such as artificial intelligence. This is playing out in fields such as autonomous driving, cryptocurrency mining, and an enhancement of the Internet of Things (IoT).
You can look at it another way. The migration of wireless technology to this point has been mostly about benefits to individual users. The emergence of 5G technology will deliver massive benefits to businesses and the country’s infrastructure.
Why Does 5G Create a Different Opportunity for Investors?
The first two generations of wireless technology (1G ad 2G) allowed wireless communication by way of voice, text (SMS) and multimedia messaging services (MMS).
The launch of 3G around the year 2000 enabled the smartphone revolution. 3G increased the network bandwidth and provided transfer rates that allowed internet applications (apps) and audio and video files. When it first launched, it was revolutionary with the ability to download apps in approximately one minute.
About 10 years after 3G was introduced, the fourth generation (4G) arrived. This is referred to as both 4G and 4G LTE. The improved latency allowed for faster uploads. This enabled streaming music and video.
The progression from 1G through 4G did not require a significant change in infrastructure. But that is not the case with 5G. And that is creating a broader opportunity for investors.
The 5G revolution began in earnest in 2019. However, the novel coronavirus and political tensions between the U.S. and China have delayed some of the build-out. But in the second half of 2020, the infrastructure of 5G is being built at a rapid pace. All of which is to say that 5G is not only an emerging opportunity but one that will be with investors for some time.
5G is About More Than a Phone
The transition from 3G to 4G was primarily about telecom stocks like Verizon (NYSE: VZ) and ATT (NYSE: T). However with the advent of 4G investors also could invest in streaming stocks such as Netflix (NASDAQ: NFLX) and, more recently, Roku (NASDAQ: ROKU).
With 5G investors have even more diversification. As we mentioned above, investors have multiple segments in which to invest. As the 5G infrastructure matures, investors have the option to shift assets to other companies to help maximize their gain.
Here are just a few of the sectors that look to gain from 5G technology:
- Semiconductors – Like most things tech, the building blocks of 5G are found in the tiny computer chips that allow processors to calculate data and execute commands. Companies like Qualcomm (NASDAQ: QCOM), Nvidia (NASDAQ: NVDA) and Skyworks Solutions (NASDAQ: SWKS) are just a few of the leading companies in this subsector.
- Equipment and infrastructure – Before wireless signals reach connected devices; they have to pass through a network of basic hardware including fiber optic wires. Although this network is invisible to consumers, it’s vital to enabling 5G. Some of the companies to look at in this area include Corning (NYSE: GLW) and Ciena (NYSE: CIEN).
- Real Estate Investment Trusts (REITs) – 5G requires a new network of mini towers and other fixed-in-place assets. This is creating opportunities for REITS that own and operate the core real estate holdings that are needed to expand the 5G network. Companies such as American Tower (NYSE: AMT) and Crown Castle (NYSE: CCI) that are leaders in this subsector are primarily income investments because of their requirement to pay out a high percentage of their profits to shareholders. However, due to the build-out of 5G, these companies are also rewarding their investors with a fair amount of growth.
- Telecom – Like the prior generations of wireless technology, the companies that provide phone, internet, and television services via 5G are among the best pure plays in the sector.
- Streaming Services – This was a category that was essentially created by the emergence of 4G and will only become more entrenched with the debut of 5G technology. Netflix is an obvious choice here. But even a blue-chip company like Disney (NYSE: DIS) has become a major player in the streaming space. This isn’t a pure play on 5G, but these companies stand to benefit from the widespread adaptation of 5G.
- Media Companies – Related to streaming services, media companies are creating films, music and other programming. And along with traditional media companies, social media companies will also benefit from 5G technology.
- Video Games – The gaming sector will be a big winner of the 5G revolution. Names like Activision Blizzard (NASDAQ: ATVI) and Electronic Arts (NASDAQ: EA) may stand to benefit from increased demand.
- Cloud Computing - 5G will enable faster and easier communication with cloud platforms. This will be a benefit to companies like Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT). Investing in cloud computing stocks is not a pure play on 5G.
- Healthcare – If you’ve visited a doctor in 2020 there’s a better-than-average chance that you did so in a virtual setting. And 5G will help ensure that telehealth will continue to grow. Healthcare will also be a beneficiary of advances in virtual reality and artificial intelligence.
How to Invest in 5G Stocks
As you can see, 5G technology is about much more than a faster mobile phone or tablet. This highlights one of the key benefits of investing in 5G stocks: diversification. Investing in 5G gives investors exposure to a wide range of sectors. And many of these sectors are among the hottest sectors in the stock market.
Of course, this does add an element of risk to 5G stocks. And one way to manage that risk is to invest in exchange-traded funds (ETFs) that track an index of 5G-related stocks.
There aren’t ETFs that title themselves as a “5G ETF.” However, by looking at the areas most likely to benefit from 5G, you can fine several ETFs that would provide you with good exposure. Some choices would be the Global X Internet of Things ETF (NASDAQ: SNSR) and the Defiance Next Gen Connectivity ETF (NYSEARCA: FIVG).
If you’re looking for even less risk, you can look at an ETF that focuses on the infrastructure behind 5G. For example, there are several ETFs that focus on semiconductors.
The Final Word on Investing in 5G Stocks
If it seems like technology is expanding even faster than just 10 years ago, you can attribute it in part to the emergence of 5G technology. The words “revolution” and “paradigm shift” are thrown around, and frequently incorrectly. But that’s not the case with 5G.
For many investors, 5G is a game changer and the technology is still in the early innings of what it will be by 2025 and 2030. The promise of 5G is only just beginning to manifest itself in our homes and businesses. But many of the technologies that were enabled with 4G were brought to market because of the knowledge that 5G was coming.
This gives investors two very important things: time and multiple paths to profit. That’s an enticing combination and one that you would do well to capitalize on.