The 5G revolution began in 2019 and gathered momentum in 2020. It will take several years for 5G to go mainstream as it is a generational shift. The current standard of 4G began in 2010. 5G is much bigger than 4G. It goes way beyond faster data speed and provides low latency, while connecting billions of devices to the internet simultaneously.
5G will make the Internet of Things (IoT) and other mission-critical applications like robotics, industrial automation, and autonomous vehicles a reality. So, early entrants should make a fortune over the coming decade. Knowing the growth potential, many tech and telecom companies are investing billions of dollars in 5G infrastructure in the early stages. Gartner expects worldwide 5G network infrastructure market revenue to almost double in 2020.
The 5G revolution has created a tremendous opportunity for the entire supply chain in the communications space. CSPs are building 5G networks that would require more network equipment, cell towers, and fiber-optic wiring than 4G. As an investor, you can capitalize on the 5G opportunity by investing in frontrunners like Broadcom Inc. (AVGO), T-Mobile US, Inc. (TMUS), American Tower Corporation (REIT) (AMT), and Crown Castle International Corp. (REIT) (CCI).
Broadcom Inc. (AVGO)
AVGO is a giant in the communication semiconductor space, growing through acquisitions. These acquisitions have broadened its portfolio, which now includes data center, networking, enterprise software, broadband, wireless, storage, and industrial. Hence, it comes as no surprise that it provides end-to-end network switching solutions for the Ethernet-based 5G New Radios and base stations. The 5G mobile networks would require 10x more capacity than 4G, driving demand for AVGO’s equipment.
Not only infrastructure, but AVGO also caters to end-devices. It is the largest component supplier for Apple (AAPL) and will benefit from 5G iPhones as semiconductor content per phone increases with technological advancement.
One thing that works in AVGO’s favor is the feud between the United States and network infrastructure leader Huawei. Many countries are abandoning the Chinese company’s equipment due to national security concerns, which is an opportunity for the US-based AVGO.
While 5G has set the momentum for AVGO’s long-term growth, the pandemic-driven remote working culture is driving short-term growth. This is because of AVGO’s entry in the enterprise software space with the acquisition of CA Technologies and Symantec.
AVGO stock surged 29% last year, 17% year-to-date, and the analysts expect it to surge another 12.5% to the consensus price target of $401.3.
The street expects AVGO’s revenue to increase by 5.5% this year and 8.8% next year. This incremental growth puts AVGO as a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” in Trade Grade, Peer Grade, and Buy & Hold Grade, and a “B” for Industry Rank. It is also the #1 ranked stock in the 86-stock Semiconductor & Wireless Chip industry.
T-Mobile US, Inc. (TMUS)
TMUS has become the hottest stock in the telecom space, as it finally completed the Sprint merger on April 1st, after years of regulatory issues. Following the merger, TMUS overtook AT&T (T) and Verizon Communications (VZ) and claimed national dominance in low- and mid-band spectrum licenses and mobile 5G network.
And TMUS is just getting started. It is adding significant capacity in the mid-band 2.5GHz spectrum, which it acquired from Sprint. Even though the stock is trading near its 20-year high, the street is bullish on the stock because of its spectrum position. The consensus Wall Street price target of $136.9 represents an upside potential of…
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