The Impact of 5G on Stocks: An Investor’s Perspective

Investors often wonder how 5G stocks will perform once the technology is fully implemented. While the transition to 5G is a significant milestone in the tech industry, it's important to understand the historical trends and the impact on different types of stocks. This article will explore the potential impact of 5G on various sectors and investment opportunities.

The Cyclical Nature of Network Infrastructure

Network infrastructure is a business characterized by its cyclic nature. There are substantial growth opportunities during the rollout phase of a new network generation, but margins are relatively low. While profitability is good, volumes drop significantly when the networks are deployed and require continuous upgrades and reinforcement. When a technology matures and expectations shift to the next cycle, the numbers can become very poor. This cyclicality is one of the reasons why the US does not have any major mobile network suppliers; such businesses do not align well with shareholder expectations.

5G as an Enabler

5G is not just a new network technology, but a significant enabler for various applications. Unlike previous network generations, 5G opens up new possibilities in areas such as smart homes, smart cities, autonomous driving, integrated traffic systems, and security services. The best investment strategy is to focus on tech companies that leverage 5G to offer products and services to the public, rather than investing in traditional infrastructure suppliers.

Equity Value Trends and Revenue Surge

Historical trends have shown that the high-level equity value trends observed with the deployment of 2G, 3G, and 4G networks should hold true for 5G. As the radio network is deployed, equipment manufacturers and companies assisting in network installations will experience a surge in revenue. This typically translates to an increase in their market value.

Churn and Cost Incurrence

After the deployment has begun, carriers and operators face churn as existing subscribers are attracted to carriers perceived as offering the best performance or value. At the same time, these operators incur large loans or issue bonds, impacting their finances. These factors often drive speculation about market value increases during this phase.

Maximizing Investment Opportunities

The highest investment opportunities usually arise about a year or more into the initial roll out. During this period, the equities behind desirable applications start catching the attention of investors. For instance, in 2012, there was a surge in interest in companies like Netflix, Facebook, Hulu, and other over-the-top services two years after 4G started being rolled out.

In conclusion, the impact of 5G on stocks depends on various factors, including the cyclicality of network infrastructure, the enabler role of 5G, and historical trends in equity value. Investors who focus on companies leveraging 5G for innovative applications have the potential for significant returns.