These stocks are profiting from the 5G boom.
One of the biggest long-term growth themes in the tech world heading into 2021 is the rollout of 5G wireless networks and 5G-capable devices. The fifth generation of wireless networks will significantly increase global network connectivity, generating faster internet connections, more capacity for advanced connected software applications and less latency for internet users around the world. Bank of America recently highlighted a handful of semiconductor, hardware and telecom services stocks that will be the biggest winners from the 5G upgrade cycle coming in the next several years. Here are seven of their top 5G stock picks.
Broadcom (ticker: AVGO)
Broadcom is one of the largest semiconductor companies in the world, and analyst Vivek Arya says the stock is among the biggest 5G winners in the mobile semiconductor space. Apple (AAPL) recently rolled out its first 5G-capable iPhone, and Arya says radio frequency, or RF, chip vendor Broadcom has “solid content gains” in the new Apple devices. Arya is projecting 14% compound annual revenue growth from RF semiconductor stocks over the next two years and says RF stocks are the best-positioned 5G play within the semiconductor space. Bank of America has a “buy” rating and $450 price target for Broadcom stock.
Qualcomm is a semiconductor supplier that also collects royalties on its wireless technology patents. Analyst Tal Liani says Qualcomm is one of his top networking equipment stock picks and is exposed to 5G through both its semiconductor and licensing businesses. Apple recently announced all of its 5G iPhone 12 models will support millimeter wave capabilities, and Liani says Qualcomm is the only RF vendor that has millimeter wave solutions shipping at large volumes. Most developed global economies are expected to deploy millimeter wave spectrum by 2021. Bank of America has a “buy” rating and $165 price target for QCOM stock.
T-Mobile US (TMUS)
T-Mobile is the third-largest U.S. wireless carrier. After T-Mobile closed its merger with Sprint earlier this year, analyst David Barden says T-Mobile will be the first carrier to deploy a true 5G nationwide network. Barden says Sprint gives T-Mobile a spectrum advantage over its larger peers, which should help drive incremental subscriber growth and potential upside to Wall Street earnings estimates. With much of the company’s merger-related challenges now resolved, Barden says T-Mobile can focus on deal synergies and deleveraging its balance sheet in coming quarters. Bank of America has a “buy” rating and $130 price target for TMUS stock.
American Tower Corp. (AMT)
American Tower is the world’s largest owner and operator of wireless communication towers. In September, American Tower announced a new 15-year master lease agreement with T-Mobile. Thanks to the T-Mobile deal and previous deals with Verizon Communications (VZ) and AT&T (T), Barden says American Tower now has about 90% of its domestic business under contract. Barden says tower stocks will benefit from a surge in wireless carrier capital spending in years ahead. In addition, the tower business is an inherently stable model given its mission-critical nature. Bank of America has a “buy” rating and $280 price target for AMT stock.
Crown Castle International Corp. (CCI)
Crown Castle is another of the larger U.S. wireless tower companies, with more than 40,000 towers. Bank of America is projecting revenue growth will rebound from 1.4% in 2020 to 4.9% in 2021. Crown Castle recently raised its dividend by about 10%, bringing its dividend yield up to 3.2%. Barden says Crown Castle’s tower business is “attractive, predictable and growing.” He says the company should be a major beneficiary of ongoing wireless network development spending in coming years. Bank of America has a “buy” rating and $180 price target for CCI stock.
Analog Devices (ADI)
Analog Devices is an analog semiconductor company specializing in high-performance analog signal processing chips. Arya says Analog dominates the 5G radio signal chain technology business with about 70% market share. In fact, Arya says Analog has an opportunity to gain roughly four times as much content in 5G infrastructure compared with 4G. Despite the 5G exposure, communications are only about 25% of Analog’s highly diversified business. Arya says the communications, automotive and industrial markets will be Analog’s biggest growth drivers in coming years. Bank of America has a “buy” rating and $145 price target for ADI stock.
Telefon AB L.M. Ericsson (ERIC)
Ericsson is one of the world’s leading network equipment and software suppliers for wireless carriers. Liani says Ericsson is among the market leaders in 5G base station equipment, such as antennas, radios and software. Ericsson anticipated the 5G cycle back in 2015 when it refreshed its radio system portfolio to include 5G software-upgradeable equipment. Liani says Ericsson is gaining 5G market share in critical geographical markets, such as the U.S., China, Australia and Germany. He says those gains should last throughout the multiyear 5G cycle. Bank of America has a “buy” rating and $14.30 price target for ERIC stock.
Dial in on these 5G stocks:
— Broadcom (AVGO)
— Qualcomm (QCOM)
— T-Mobile US (TMUS)
— American Tower Corp. (AMT)
— Crown Castle International Corp. (CCI)
— Analog Devices (ADI)
— Telefon AB L.M. Ericsson (ERIC)
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Update 11/09/20: This story was published previously and has been updated with new information.