Investment Opportunities in the 5G Era: Which Concept Stocks Are Worth Watching

From 1G to 5G, the evolution of wireless communication technology has driven the entire society’s digital transformation. Today, 5G has gradually become the mainstream in the communication market and has spawned huge investment opportunities. This article will delve into the current development status of the 5G industry and the most promising investment targets within it.

What Are 5G Concept Stocks

5G (Fifth Generation Mobile Communication Technology) is not just a technological upgrade but has also given rise to a vast industrial ecosystem. The so-called 5G concept stocks refer to listed companies whose businesses are closely related to 5G technology.

According to the industry chain division, the 5G ecosystem is divided into three levels:

Upstream: Component manufacturing (base stations, antennas, RF chips, optical modules, fiber optics, etc.)

Midstream: Communication equipment supply (core network equipment, network coverage equipment)

Downstream: Operators, terminal manufacturers, internet application companies

Global 5G Leading Stocks Overview

According to ICE FactSet’s Global Future Communications Index, the leading global 5G companies include Samsung, Apple, Cisco, Broadcom, Qualcomm, American Tower, Applied Materials, Verizon, Coli Research & Development, Equinix, and other international giants.

From 2020 to early 2022, global 5G concept stocks generally showed an upward trend, reaching a peak in January 2022. Due to the impact of the global interest rate hike cycle, 5G concept stocks experienced about a 30% decline in 2022. However, since October 2022, related stocks have begun to rebound, recovering approximately 20% from their lows.

Taiwan 5G Concept Stock Investment Targets

According to the Taiwan 5G Return Index, top-ranked 5G concept stocks include UMC, Delta Electronics, KYEC, TSMC, Chunghwa Telecom, MediaTek, Novatek, Taiwan Mobile, Sunlight REIT, FarEasTone, and others.

TSMC (2330.TW)

As the world’s largest wafer foundry, TSMC holds a pivotal position in the 5G industry. Reports indicate that Apple’s self-developed 5G baseband chips will adopt TSMC’s 3nm process technology, expected to enter trial production in the second half of this year, directly driving TSMC’s performance growth in 2023.

Delta Electronics (2308.TW)

Delta Electronics has laid out its industry presence in both upstream and downstream segments of 5G, covering components, network ICs, communication equipment, and more. In 2021, the company established Taiwan’s first 5G smart factory, significantly promoting automation. In 2022, revenue reached 384.4 billion TWD, an increase of 22% year-over-year, setting a new record. It also has a 40-year history of dividend payments, with a dividend of 9.84 TWD per share in 2023.

UMC (2303.TW)

As Taiwan’s first wafer manufacturing service company and a listed semiconductor enterprise, UMC holds an important position in Taiwan’s semiconductor industry. In 2022, revenue reached 278.7 billion TWD, up 30% year-over-year, marking three consecutive years of growth. Management states that the proliferation of 5G, AIoT, and electric vehicles will serve as long-term growth drivers.

Chunghwa Telecom (2412.TW)

Chunghwa Telecom is a leading company in Taiwan’s communication network sector. As of December 2022, its 5G user base reached 2.447 million, ranking first in Taiwan. The 2022 financial report shows its profits have increased for three consecutive years, with a net profit per share of 4.71 TWD, leading among the “Big Three Telecoms.”

MediaTek (2454.TW)

MediaTek is the world’s fourth-largest chip design company, ranking first in global mobile chip market share in 2022. In the 5G chip market, MediaTek’s shipments increased by 20% compared to the same period last year, and revenue hit a new high.

Major U.S. 5G Concept Stocks

Qualcomm (QCOM.US)

Qualcomm is a leader in the global wireless communication chip market. Its foundational technology enables mobile phones to connect to the internet. As a pioneer in 5G technology, Qualcomm will continue to lead the world into the 5G era through its chip technology. The cyclical nature of the semiconductor industry offers investors opportunities for swing trading.

Apple (AAPL.US)

Apple is one of the most valuable companies globally, with a market capitalization of $2.61 trillion. As 5G technology matures and becomes consumer-facing, Apple, as a terminal product provider, will benefit significantly from 5G adoption.

NVIDIA (NVDA.US)

NVIDIA is renowned for its high-end GPU technology, which is used not only in gaming but also extensively in artificial intelligence, autonomous driving, and 5G network optimization. 5G networks require high-end GPUs to handle higher traffic and intelligently route signals. NVIDIA is exploring a vast new 5G market.

Ericsson (ERIC.US)

Founded in 1918, Ericsson is a key player in promoting global 5G technology. Its networks carry about 40% of the world’s communication traffic. Ericsson predicts that by 2025, there will be 2.6 billion 5G mobile users worldwide. The company aims to be “the first to deploy commercial 5G networks on four continents.”

AT&T (T.US)

AT&T is a telecommunications giant in the U.S., currently providing 5G services in over 14,000 towns. Its annual dividend yield is 5.61%, making it a high-value investment option.

Advantages and Risks of Investing in 5G Concept Stocks

Investment Advantages

Broad Market Prospects: 5G is still in its early development stage with enormous growth potential. According to Ericsson, in 2022, 5G networks covered one-quarter of the global population, and by 2027, coverage is expected to reach three-quarters. As of February 2023, Taiwan’s 5G users reached 7.01 million, accounting for only 23% of total users, leaving room for growth.

Strong Corporate Fundamentals: Companies involved in 5G are often industry leaders with strong financial resources and top-tier technological capabilities. Many of these companies continue to pay dividends, providing investors with income.

Policy Support: Countries worldwide have elevated 5G to a national strategic level, continuously introducing policies to encourage research and application of 5G.

End of Rate Hike Cycle: The global interest rate hike cycle is nearing its end, which is favorable for tech stocks.

Investment Risks

Technology Not Fully Mature: 5G base station coverage still needs improvement, large-scale deployment will take time, and related costs will eventually reflect in stock prices.

High Stock Price Volatility: The semiconductor and equipment manufacturing industries are cyclical, and 5G concept stocks may experience significant price swings.

Recession Risks: A global economic recession could adversely affect 5G concept stocks.

Diversified Investment Approaches for 5G Concept Stocks

Besides directly purchasing individual stocks, investors can participate in 5G investments through other methods:

Stock Funds: Managed portfolios of selected stocks, effectively diversifying risk but with higher transaction costs and management fees.

ETF Funds: Passively track related indices (such as Cathay Taiwan 5G+ ETF, Yuan Global Future Communications ETF), offering low costs and trading convenience.

Contracts for Difference (CFD): Offer leverage trading, two-way trading, high liquidity, allowing investors to seek opportunities within a more flexible framework.

2023 Investment Outlook for 5G Concept Stocks

Overall, 2023 remains a year worth paying attention to 5G concept stocks.

Firstly, from an industry perspective, 5G is still in development, with global coverage less than one-third, and enormous growth potential ahead. Emerging applications such as ultra-high-definition video, streaming media gaming, virtual reality, etc., will drive long-term demand.

Secondly, the global interest rate hike cycle is approaching its end, providing valuation recovery opportunities for tech stocks.

However, investors should carefully assess risks, especially the possibility of a global recession, which could cause short-term shocks to the 5G industry.

In summary, for investors with a longer-term investment horizon, 5G concept stocks still hold attractive prospects in 2023.