Concerns around 5G technology, combined with delays in components, may have slowed down the rise of 5G – But now we are over halfway through 2021, is 5G still a relevant investment angle?
It’s barely worth investing in mega caps like Apple (NASDAQ:AAPL). Yes, they make for a solid one to tuck away as part of a fund, in the same way as AstraZeneca (LSE:AZN), Rio Tinto (ASX:RIO), or Microsoft (NASDAQ:MSFT) might sneak its way into your SIPP. But fast EPS-growth picks-and-shovels plays may be the better investment angle.
Investing in the 5G supply chain
That means looking at the supply chain for the thing rather than the thing itself, such as infrastructure, components, delivery, all that good stuff.
And the supply chain remains the critical part of the puzzle. As Asia Nikkei reported, device makers are racing to secure enough parts, especially semiconductors and displays, which need several months to manufacture, in anticipation of a post-coronavirus boom in 5G demand.
Taiwan-listed OLED display manufacturer Innolux Corporation (TPE:3481) looks encouraging. With revenues in March 2021 of 83.84 B TWD, a current market cap of 187.03B TWD, P/E ratio of 3.96 and a dividend yield of 2.35%.
In London, Calnex (LSE:CLX) is a recent IPO, joining the AIM market on 5 October 2020 with a £94.5 million market cap. Since the IPO debuted the Calnex share price doubled in value to 131p, before sliding back to a more reasonable 113p price.
Calnex designs and markets testing instruments for network synchronisation. In plain English, this means its allows its customers, like BT (LSE:BT), China Mobile (HKG:0491), Intel (NASDAQ:INTC), Qualcomm (NASDAQ:QCOM), IBM (NYSE:IBM) and Facebook (NASDAQ:FB) to validate the performance of their products which use telecoms networks.
There is a lot of testing required in this area, especially because the density of 5G products is slated to rocket. And Calnex is well placed to take advantage of the massive budget and structural shifts towards the use of 5G, IoT and cloud computing.
Among those buying in on its October market debut were BGF Investment Management, which has £2.5 billion of assets under management and now holds 15% of the CLX share capital. Other institutional investors joining in October were the hedge funds Otus (8.57% ownership) and Slater Investments (6.24% ownership).
Chipmakers or semiconductor manufacturers are also worth watching and potentially investing in. Although the pandemic has brought some delays in components, are the likes of Qualcomm (NASDAQ:QCOM) and NVIDIA (NASDAQ:NVDA) still a relevant 5G investment angle?
Qualcomm creates semiconductors, software, and services related to wireless technology. It owns patents critical to the 5G, 4G, CDMA2000, TD-SCDMA and WCDMA mobile communications standards. Back in May 2021, Qualcomm share prices had dropped to $124, but since has shown a steady increase peaking at $152 and now sitting at $144. Qualcomm also boasts a market cap of 162.59 B USD and a dividend yield of 1.89%.
NVIDIA designs graphics processing units for the gaming and professional markets, as well as system on a chip units for the mobile computing and automotive market. The NVIDIA share price is currently at its peak at $219.58 and has shown an increase in revenue from 10.92 B USD in 2020 to 16.68 B USD today – a 52.73% increase. It also has a market cap of 547.19B USD.
Should I invest in 5G?
While the deployment of 5G may have seen some delays due to the global pandemic and a shortage of vital components, as 5G deployment and adoptions gains pace it is anticipated that patient investors with a long-term strategy could see attractive returns.
As with all investments there are no guarantees that your investments will grow, and investment in 5G stocks definitely has its risks. But sentiment for the 5G stocks is encouraging.
