The 5G future is nigh and despite the pockets of rather angry protesters over the past few months, technology is moving into a new, faster, data-heavy era. Much like that of space stocks such as Virgin Galactic (NYSE: SPCE), which I wrote about a few weeks ago, it is better to start investing now rather than later.
Phones, the Internet of Things, businesses, data centers, as well as augmented reality technology will all be affected and enhanced by 5G. The new faster network will allow larger amounts of data and connections to be handled at faster rates. The opportunity is there now for anyone wanting to invest in this market, so here are 3 stocks to consider on your journey into the 5G future.
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1. Analog Devices
Analog Devices (NASDAQ: ADI) has been essential in the creation of the world’s first 5G network whilst playing a role in the development of 2G, 3G & 4G in the past. As of February, it has been working with Marvell (NASDAQ: MRVL) — no, not the Disney-owned (NYSE: DIS) film studio — a semiconductor tech company, to produce new and improved architecture for 5G radio frequency capabilities.
I don’t really understand all this complicated technology mumbo-jumbo, but what I do know is that Analog Devices provide chips that will allow communications companies to process data faster, whilst keeping costs low. This also means there will be an increase in data storage needed which increases revenue in turn for those companies. This company also offers solutions to this as its 5G-only radio frequencies will reduce the power needed by 30%.
Analog Devices also pays shareholders a dividend and has done so for the last 10 years. Its payout ratio for the next 3 years should remain at 60% with the return on equity increasing from around 10% to 14%. For a company at the forefront of 5G technology, investors would do well to notice this company as a potential investment.
2. American Tower
One of the world’s largest real estate investment trusts (REIT), this company leases out property for 5 – 10 years on a non-cancelable, yet renewable basis. This ensures a stream of revenue from its portfolio of some 180,000 sites. American Tower (NYSE: AMT) specializes in communication sites in particular — meaning communication towers and other infrastructure — and owns, develops, and rents them.
Since 2018, the 5G market has been expected to grow at a compound annual rate of 96% through 2025. Alongside market growth, the need for 5G infrastructure has also increased over the last year. This is where American Tower makes its profit. Investing money into network development whilst leasing out property and infrastructure with a set inflation rate for a set period of time ensures both increased stability and profit on a year by year basis.
This company is one of the most likely to be impacted by 5G protesters as they seem to be targeting wireless towers. However, American Tower will most likely manage to survive the 5G-outraged ‘conspiracy-theorists’ — particularly as it secured a guarantee of $28 billion in contractual agreements as of 31st of March this year. Some of those clients include Verizon (NYSE: VZ), T-Mobile (NASDAQ: TMUS), and AT&T (NYSE: T) — all of which will be utilizing 5G more and more in the future.
3. Keysight Technologies
Keysight Technologies (NYSE: KEYS) develops software and network measurement systems for tech companies that make products for 5G accessible devices. In 2019 it brought in $4.3 billion in revenue. Currently, its free cash flow sits at around $920 million — this shows it is in a strong position continuing forward through COVID-19 and the market loss of new smartphone sales.
Recently, Keysight acquired a software company called Eggplant from The Carlyle Group (NASDAQ: CG) which specializes in AI. The acquisition cost $330 million and gives Keysight a digital platform from which it can test specific technologies on any device at any layer of any of its interfaces or databases. Although I am out of my depth with the scientific intricacies, I can still somewhat work out that this will enhance network measurement and development, making it easier to test and implement 5G technologies by reducing operating cost and time.
For any investor, this company is one to watch as it is deeply immersed in the 5G world producing complicated systems that a scientifically illiterate person like myself can only begin to imagine.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Poppy’s favorite stock is Nvidia as she loves innovation and this stock has bags of it. Nvidia invented the GPU in 1999 and even today its immersive graphics give life to the gaming world. Poppy is also inspired by Nvidia’s ability to imagine and create positive change for the world, with its AI technology fuelling new developments in the automotive industry, the medical industry, as well as powering data centers around the world.