25th May 2020
In the coming months, U.S. consumers will face a barrage of advertising for fifth-generation, or 5G, networks and shiny new phones. Verizon Com munications promises ultrafast speeds and massive capacity. “It will change everything,” the carrier says. At AT&T , 5G is “transforming the future.”
But investors betting on 5G should temper their expectations. The rollout will be more evolution than revolution, delaying potential rewards for Verizon (ticker: VZ) and AT&T (T)—and consumers. For years to come, 5G networks will coexist with the current 4G LTE networks. And the speeds could be limited as the complex networks are built.
“The value proposition for a smartphone customer to upgrade to 5G just isn’t remotely there yet, and it won’t be there for a very long time,” says veteran telecom analyst Craig Moffett of MoffettNathanson.
The new technology will eventually allow 4K movie downloads in seconds, virtual and augmented reality on the go, and remote surgeries, all while connecting millions of devices that could create smart cities, factories, and transportation networks.
But big ideas don’t always translate to larger profits. Here, the prior 4G rollout offers lessons for investors. While smartphone sales and data usage soared with 4G, the average revenue per wireless subscriber has actually declined over the past decade, according to Moffett. Instead, much of 4G’s value has accrued to businesses such as Uber Technologies (UBER) and Snap (SNAP), which didn’t exist a decade ago.
“There’s always an element of faith,” says Raymond James analyst Simon Leopold. “If I knew the next great business case based on 5G, I would quit my job and go do that.”
To find 5G beneficiaries, investors will have to think outside the box. The good news is there are existing stocks poised to benefit. Here’s where to look:
Network Infrastructure
In the near term, the best way to play the 5G rush is not through the wireless carriers, but rather the universe of firms earning their 5G investments.
“ The value proposition for a smartphone customer to upgrade to 5G just isn’t remotely there yet, and it won’t be there for a very long time. ”
“We think of these as arms merchants to the combatants,” says Leopold. “There is a significant complex of companies involved in 5G beyond the most obvious players.”