16th Mar 2021
Covid-19 has normalized work-from-home, highlighting the need for improved connectivity, online security and data sharing solutions. This alone could point to the secure future of 5G for its contribution to the technological landscape. Yet the potential within the 5G rollout, and the implications of its super-fast speeds, low latency and greater functionality, extend far beyond remote work solutions.
As Warren Buffet’s recently revealed 5G stock choices indicate, 5G underlies a digital transformation that is set to sweep the world. The hyperconnectivity that it supports could pave the way for smart cities, autonomous driving and remote healthcare. 5G holds the potential to connect millions of devices, and process masses of data on everything from air or soil quality, to traffic flows to a person’s body temperature. When coupled with Edge processing, and machine learning to maximize the power behind the data, 5G could bring unprecedented digitization of all walks of life.
Investor and business tycoon, Warren Buffet, who has been considered one of the most successful investors in the world, recently demonstrated his confidence in the future of 5G by opening or enlarging investment positions in two companies central to the 5G rollout. His considerable capital lets him bet directly and extensively on these two power players in the 5G space, while next generation retail investors can gain exposure by going for a 5G ETF that potentially mitigates the risk of a single company, while offering diversified exposure to the 5G future.
Buffet bought 147 million Verizon shares for $8.62 billion1. Verizon, which was formed in 2000, was the first to offer customers access to 5G, when it launched networks in Chicago and Minneapolis in April 2019. It resisted expanding into the realm of media and maintained a strong focus on 5G2, focusing its R&D resources on challenges like improving spectrum range and penetration into buildings.
By now Verizon has launched 5G networks across thousands of US cities and manufactures a range of commercially available 5G-enabled cell phones. It has also initiated 5G-industry partnerships for example, supporting global pharma track-and-trace solutions, which improve inventory management, demand and use evaluation, patient safety and cost control.3 Verizon recently announced the continued rollout of its Ultra Wideband service, which uses millimeter wave (mmWave) spectrum and is even faster than its nationwide service, which uses a lower spectrum.
The pandemic does not seem to have harmed Verizon’s core value-estimation. The company’s total debt fell by $4.9 billion in the second quarter of 2020 as Covid reduced advertising costs and lower subscriber-acquisition costs actually boosted company margins. Morgan Stanley even noticed that lower smartphone sales are actually linked to stronger stock value for Verizon, indicating the long-term potential investors see in Verizon as a 5G provider.4
Buffet also upped his stake in T-Mobile, from 2.4 million shares valued at $276 million that he bought in the third quarter of 2020, to 5.2 million shares of T-Mobile valued at $706 million. T-Mobile runs the largest US 5G network, covering 1.6m square miles, and it has been strategically pursuing this goal, merging with Sprint last year to add invaluable mid-band spectrum. It had a strong 2020, with 1.7m total net additions in the fourth quarter, the best in the industry. This aligned with 5.6m over the whole year, which also beat all the competitors and was the highest level achieved in the last four years. In the fourth quarter of 2020 it saw the lowest ever customer churn for the T-mobile brand, and again outperformed all other companies in the sector.5
T-Mobile ended the year with 102 million subscribers, a little behind Verizon’s 120 million. While T-Mobile launched its 5G network over a year ago, it has moved ahead aggressively and in January 2021 announced that independent research found it to provide the fastest download speeds, fasted 5G upload speeds and most widely available signal.6
Buffet’s commitment to these two sector leaders is a clear acknowledgement of the wide use-case potential inherent in the ultra-low latency and high speeds of 5G. Indeed former CISCO CEO, John Chambers recently highlighted 5G technology as a likely source of ongoing economic expansion. He analogized it to the 1990s, when technology and the internet stimulated a decade of growth – a 34% rise in GDP, 24% rise in average household income – due to the underlying infrastructure build out.7 Chambers emphasized that 5G, as an enabler of the Internet of Things and the Edge, could be a similar source of development. He noted that countries ranging from France to India are all pursuing digitization as a necessity rather than an option.
Warren Buffet is known for advocating the strategy of value investing, whereby companies are valued for their strong earning power and long-term growth potential. His decision to increase his exposure to two of the leaders in the US 5G rollout points to his confidence in the value and potential of 5G technology.
1 “Warren Buffet is rights to bet big on 5G: former CISCO CEO,” Brian Sozzi, February 17, 2021. https://finance-yahoo-com.cdn.ampproject.org/c/s/finance.yahoo.com/amphtml/news/warren-buffett-is-right-to-bet-big-on-5-g-former-tech-ceo-180603644.html
2 “Verizon vs. AT&T: Which Is Better?”, June 17, 2020, Forbes, https://www.forbes.com/sites/greatspeculations/2020/06/17/verizon-vs-att-which-is-better/#1c89c98c3290
3 Pharmaceutical supply chain, Verizon, https://enterprise.verizon.com/solutions/customer-success-stories/use-case-mec-and-pharma-supply-chain/?_ga=2.241545026.1188300861.1613295526-1041799425.1613295526
4 “Smartphone sales are in a ‘massive’ slowdown—here’s who could benefit,” Emily Bary, April 23, 2020 https://www.marketwatch.com/story/smartphone-sales-are-in-a-massive-slowdownheres-who-could-benefit-2020-04-23?mod=article_inline
5 “T-Mobile, the 5G leader, had the BEST YEAR EVER, in all caps,” Daniel Petrov, February 5, 2021. https://www.phonearena.com/news/t-mobile-5g-subscribers-network_id129940
6 “USA: 5G User Experience Report,” Ian Fogg, Open Signal January 2021. https://www.opensignal.com/reports/2021/01/usa/mobile-network-experience-5g
7 “Warren Buffet is rights to bet big on 5G: former CISCO CEO,” Brian Sozzi, February 17, 2021. https://finance-yahoo-com.cdn.ampproject.org/c/s/finance.yahoo.com/amphtml/news/warren-buffett-is-right-to-bet-big-on-5-g-former-tech-ceo-180603644.html