The Future of 5G Stocks
There’s little doubt among analysts that 5G stocks will be among the most valuable stocks in a few years time. This new form of wireless Internet is going to shape the future of a variety of industries, from artificial intelligence (AI), to the Internet of Things (IoT), to autonomous vehicles.
There are trillions of dollars in market value at play here. But, as with so many innovative technologies before it, there’s a lot of competition for just which 5G tech will reign supreme. Right now, we’re witnessing a standoff between several different countries when it comes to 5G tech, with the winner likely determining which 5G stocks will be the most profitable.
In order to understand the current standoff among governments when it comes to 5G tech, you have to understand the context surrounding the issue.
5G, for all the good it will do for the above-mentioned industries, carries with it some risks. The lightning-fast connectivity that permits companies and individuals to send and receive data online also permits those with nefarious aims (namely hackers) to do the same.
Cybersecurity is a big concern, as the speed of 5G could render many current cybersecurity systems obsolete.
That’s an issue at the individual level, but going broader, the very creation of 5G tech has been a cause of friction.
Whereas 4G, the preceding technology, was largely developed by the U.S. and Europe (among others), 5G tech has had much more Chinese involvement.
You may have heard of Huawei Technologies Co., Ltd., a smartphone maker and wireless network provider that has been in the news as the U.S. seeks to counter its encroachment on the 5G space.
Considering that Huawei Technologies is among China’s most prized companies (and remembering that virtually all major corporations in China have close ties to the Chinese government), the conflict between the U.S. and China on the 5G front is bound to heat up.
You may recall that, a couple years ago, Huawei CFO Meng Wanzhou was arrested on fraud charges in Vancouver, Canada on behalf of the United States. This was just one of a culmination of tensions between the U.S. government and Huawei (and by extension the Chinese government). (Source: “How Huawei’s CFO Ended Up in a Canadian Jail Cell,” CNN, December 11, 2018.)
Huawei Technologies, being a major player in the 5G space, is of course not particularly happy with being targeted by the U.S. government. On the U.S. side, there are concerns about intellectual property theft by the Chinese company. (Source: “5G Was Going to Unite the World—Instead It’s Tearing Us Apart,” July 2, 2020.)
That is making the coming 5G wars that much more heated (and important). You see, Chinese companies and U.S. telecom providers are both jockeying to be the worldwide supplier of 5G tech.
While 5G stocks are surging right now, that’s more based on the future of the industry than on their current value. Although the transition to 5G tech is currently underway, it will likely take a few years to fully implement it.
The GSMA, an organization that represents mobile operators, said that, as of January 2020, 79 operators in 39 markets had announced plans to launch commercial 5G services. (Source: “5G Is Now Live in 24 markets, GSMA Predicts It’ll Be 20% of Global Connections by 2025 — and Eyes a Big Tech Break-Up,” TechCrunch, March 5, 2020.)
The GSMA projects that 4G will likely remain dominant until 2023, when we’ll start to see more people switch over to 5G. As you might expect, 5G will land in urban areas first and gradually expand from there.
One hurdle is that the price differential may scare away investors for some time.
“The number of live 5G markets is increasing by the day and consumers’ awareness of the technology is also growing as hype makes way for reality. However, there is wide variation across the globe in terms of intentions to upgrade to 5G and the willingness to pay more for it,” said the GSMA. (Source: Ibid.)
So there are still a few years before we will have a distinct winner in the 5G space. That leaves a lot of time for China and the U.S. (and a few other countries) to duke it out over just which country will lead this industry.
So what does that mean for 5G stocks in general, and how can investors profit? It’s pretty simple: side with the winner.
While many Chinese companies are not publicly traded, making it difficult for investors to profit from them, should Chinese 5G tech become the dominant form over the next few years, no doubt many telecom stocks in the U.S. will do business with Chinese 5G companies.
If China ends up dominating this field, the companies that are fastest to adapt to Chinese 5G tech would be the most profitable.
On the flip side, should the U.S. emerge dominant, that would be the best-case scenario for stock investors. It would mean that many of the U.S.-based 5G stocks that we’ve profiled at Profit Confidential would see huge gains.
To be fair, those stocks are likely to see large gains regardless, but it will be a simpler matter if the U.S. version of 5G tech is the one that is globally adopted.
Of course, the worst-case scenario is also the most likely: that we’ll see a division and partitioning of the global 5G market between the U.S., China, and other countries. Should that come to pass, it wouldn’t mean there won’t still be room for investment gains. Far from it; it would just mean that those gains would be decentralized.
In other words, there would be a higher number of 5G stocks seeing gains, but the gains would be spread out, meaning an investor would have to put in a little more legwork to see substantial gains.
But even as a worst-case scenario, that’s not all that bad.
As is usually the case when it comes to Internet tech, there’s bound to be a lot of disputes between the companies operating in that space and the governments that regulate them. Internet freedom and regulation remain two of the most important issues of our time.
That being said, 5G tech opens up a variety of its own considerations that will have to be factored into investing in 5G stocks. What’s important to remember, however, is that the potential for 5G stocks to see huge gains in the coming years is constant, no matter how this all shakes out.