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Investing in the Coming Data Revolution

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By now you’ve likely heard of 5G, the next advancement in mobile networking technology that’s promising faster speeds, greater reliability and a whole new scope of functionality.

But those promises, and most of the public’s awareness of 5G, are coming from commercials, which always seem to be boasting about the “next big thing” in tech. So what exactly is 5G, why do we need to replace 4G, and just how much better will these new networks be?

There are some hard-and-fast things that investors need to consider. Namely, this is going to be a massive business. According to IHS research, 5G will have global economic impact through 2035 – meaning that its deployment will inspire growth around the world for more than a decade and a half.

By then, about $12.3 trillion worth of goods and services will be enabled by 5G networks, nearly 22 million jobs will be created by labor force demands related to 5G, and the new network will have contributed approximately $3 trillion to global GDP.

This type of expansion should be enough to interest even the least-tech-savvy investor, but before one looks to add 5G exposure to their portfolio, they should understand more about how the network will work and what industries will benefit directly from its rollout.

Continue reading . . .


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Let’s examine these topics to create a brief overview of how to invest in the 5G industry.

What The Heck Is 5G, Anyway?

The term “5G” is simply a short version of “5th generation mobile networks.” Industry standards have been denoted using their numerical signifier and the letter “G” since they’ve existed, with the current version being, of course, 4G. There are also descriptors such as “LTE” that indicate improvements over previous standards which do not qualify as entirely new generations.

The actual requirements for 5G are not quite finalized yet, but the ITU said it will need to facilitate speeds up to 20 gigabits per second. That’s equal to 125 megabytes per second, or about 20x the maximum speed of the most powerful 4G connections.

To accomplish this, 5G will utilize low frequency waves as well as millimeter waves (mmWave), which are basically an untapped spectrum for communication purposes. These waves are low-range frequencies and were previously considered impractical for telecom networks. However, they have a much higher bandwidth and should be able to power close-knit webs of connections.

This speaks to the necessity of 5G. New generations only come along when the industry demands it, and that typically coincides with a shift in use. Take 4G, for example. This generation was rolled out about 10 years ago, just as smartphones were becoming ubiquitous and consumers needed speedy, reliable connections to send multimedia messages, access social media, stream video, and take the desktop computer experience on the go.

Now, 5G is needed to help usher in the next wave of human-technology interaction such as the Internet of Things. People aren’t just talking to other people anymore; they’re communicating with a growing number of connected devices in their homes, offices, and even their communities. 5G is the technological infrastructure that makes a future of autonomous vehicles, smart cities, and artificial intelligence possible.

Chipmakers Powering the New Generation

One of the primary industries working to enable 5G technology is semiconductor manufacturing. Chipmakers are spending a combined $200 billion a year on investments in 5G, according to recent IHS data.

Some of the world’s largest mobile equipment makers were conceptualizing what 5G would look like as far back as the early 1990s. Now, these companies are notching historical achievement after historical achievement as we approach a full commercial rollout of the new generation.

The potential for 5G to spark immeasurable growth in this industry is one reason why so many investors remain bullish on chip stocks despite a brutal year for the business in 2018. This is one of Wall Street’s most cyclical industries. When a surge in demand slows down and creates an oversupply, chip prices fall and semiconductor stocks crater.

But just beyond the end of this chip super cycle lies brand new demand for 5G-standard hardware, and that could mean the peak-to-trough process for the industry is more muted than usual. There is no doubt that 5G will spark growth; now it’s just a question of when and how much.

Telecoms Coming Out on Top

Beyond mobile hardware, telecoms will play the most important role in the deployment of 5G. These are also the companies leading the charge in terms of marketing 5G, as you have likely already seen. So far things have been gimmicky – or downright misleading, in some cases – but all of the mobile telecom giants will likely have real 5G networks switched on by the end of 2019.

Once mobile handsets that meet 5G standards hit the shelves, slated for the second half of 2019, the race really starts for the telecoms. These companies are maneuvering to ensure that their 5G networks will be the fastest, largest, and most reliable, just as they would on any other day. There’s just another swath of potential in front of them as users grow accustomed to the faster speeds and start to demand more from their providers.

Where the Biggest Opportunities Are

5G is more than simply the next evolution of smartphones. It’s lightning-fast speed and enormous capacity will open the floodgates for revolutionary new developments that were impractical or impossible before.

One groundbreaking technology looks particularly exciting.

As 5G networks become the standard around the world – a shift that’s already underway right now – we will see the emergence of a new “information superhighway.”

Think about how much our daily lives changed as a result of the first information superhighway (which is what we called the internet in the early days). Think about the total transformation of our economy. For example, the only trillion-dollar U.S. companies in the U.S. are internet companies. Not Big Oil. Not Big Pharma.

According to industry analysts, the new information superhighway could be just as transformative as the invention of the World Wide Web. The profit potential is enormous, especially for investors who get in early.

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Good Investing,

Sheraz

Sheraz Mian is our Director of Research. He determines which data to use for assessing stocks and funds. He is a contributor for Zacks Equity Research and Earnings Analysis, and is also the Editor of Zacks Top 10 Stocks.

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