Although 5G has launched in a handful of markets, 2019 will become the year when it begins to operate on a large-scale basis. Hardware manufacturers have released chips for phones and other devices that can support 5G, and help 5G stocks. Moreover, 5G can help society better utilize existing applications in areas such as artificial intelligence (AI), virtual reality (VR) and the Internet of Things (IoT).
Since 5G will likely bring new applications not yet imagined, we cannot know the full extent of the changes it will deliver. Even by the most conservative estimates, 5G will increase download speeds by at least tenfold over 4G LTE. Some analysts forecast much higher increases, especially when compared to non-LTE 4G. Whatever the improvement, it can also support 1,000 times as many devices per meter as the current 4G technology.
Still, we don’t fully know which companies will play the most significant role in driving the 5G tech revolution. Perhaps it could be a company no analyst would think to list here. Maybe some of these companies do not yet exist. However, some obvious beneficiaries have emerged. As a result, the following five 5G stocks should benefit in 2019:
Apple (AAPL)
The release of 5G-compatible chips will have an immediate, direct impact on Apple (NASDAQ:AAPL). As it joined other tech stocks in a downward slide, Apple has seen its $1 trillion market cap and its title as the world’s largest market cap slip away. Analysts cited lagging iPhone sales as one of the biggest reasons for the drop in the stock price.
However, thanks to 5G, iPhone users who had delayed upgrades will find themselves forced to adopt the latest model. Chip manufacturers have now developed 5G chips specifically designed for these devices. As such, Apple and its peers almost certainly will include 5G capabilities in their next models.
Both earnings growth and the trailing price-to-earnings (P/E) of about 14 should create an additional incentive to buy AAPL stock. Apple has rarely commanded a P/E above 20 in recent years. However, with profit growth expected to average 13% per year over the next five years, 5G could help AAPL’s stock price to increase at double-digit growth rates again.
Whether Apple can leverage 5G beyond the iPhone and its other devices remains unclear. However, with the need for 5G-compatible iPhones, we will likely not read stories about lagging iPhone sales in the fall of 2019. That in and of itself should bolster the price of AAPL stock, helping it to stand out among 5G stocks.
AT&T (T)
AT&T (NYSE:T) will become one of the three or four carriers to offer 5G service in the U.S. AT&T and its main peers have each spent tens of billions of dollars to eventually roll out the service across the country.
Admittedly, It remains unclear whether AT&T or its peers can gain a long-term advantage over one another. With T stock also focused on acquiring content, Verizon (NYSE:VZ) or T-Mobile (NASDAQ:TMUS) have become more pure plays on 5G. Also, Verizon holds a slight lead in rolling the new technology. Moreover, if T-Mobile can complete its merger with Sprint (NYSE:S), all three companies will hold approximately the same market share.
However, from a perspective on equities, T stock stands out on both valuations and dividends. The forward P/E ratio stands at 8.6, well below that of its peers. It also comes in under the five-year average P/E of 17.6 for T stock. The depressed state of the stock has also taken its dividend yield above 6.5%. Due to the stock price’s dependence on annual dividend increases, AT&T will probably raise the current $2 per share yearly dividend level soon. That increase would mark the 34th consecutive year that the company hiked its payout.
Although AT&T and its peers will be among the more important 5G stocks, T stock likely wins out over its peers on near-term profit potential.
Intel (INTC)
The rise of 5G holds the key to reviving Intel (NASDAQ:INTC). INTC stock has languished more than the stocks of its PC-era peers as the company has struggled to redefine itself. Now, Intel has emerged as one of the more important 5G stocks. It leads the way in 5G-centered technology such as data centers and IoT. Many also believe Apple will turn to Intel 5G chips to power the first 5G iPhones. If true, the technology will play an even more direct role in reviving INTC stock.
Intel stock needs a revival. Many PC-era stocks such as Microsoft (NASDAQ:MSFT) have returned to prominence as they redefine themselves. However, Intel’s forward P/E ratio remains stuck at about 11. Investors have shied away from Intel as security threats and management turmoil cooled sentiment.
Still, 5G systems will rely heavily on data centers. The technology also will expand the scope of IoT. This at least partially explains why analysts forecast an average profit growth rate of 10.2% per year over the next five years. Plus, if Intel finds its way inside the iPhone, that rate could go much higher. Between the low multiple and the potential for 5G, it has become difficult not to imagine INTC stock reclaiming a leadership position in the tech industry.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) emerged from nowhere to become the premier chip company. Its graphics capabilities built from a gaming niche have evolved to support artificial intelligence (AI), virtual reality (VR), and augmented reality (AR). In the minds of many, Nvidia has overtaken Intel as the tech industry’s most important chip company. 5G will play a crucial role in further bolstering its leadership, particularly in the area of autonomous cars.
The Nvidia Drive platform will be placed on a self-driving truck in Sweden next year.
The decline in crypto created a glut in chips and an almost half-off sale in NVDA stock. Nvidia traded at over $292 per share as late as early October. Today it trades just above $150 per share. Moreover, its forward P/E ratio has fallen around 21. NVDA has not seen a multiple that low since the middle of the decade when Wall Street regarded Nvidia as a languishing PC gaming stock.
Now, as one of the more significant 5G stocks, it may struggle in the near term as the chip glut hampers growth. However, I think investors will remember the latter part of 2018 and 2019 as the ideal time to buy back into NVDA. Also, analysts predict that double-digit profit growth will return in 2020. As its 5G-equipped chips expand the scope of self-driving cars, both 5G and Nvidia should drive the future, as well as NVDA stock.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) might seem like a strange choice in light of the news that Qualcomm chips will no longer power Apple’s iPhones. Further, the Justice Department blocked its attempt to buy out NXP Semiconductor (NASDAQ:NXPI). Such news has sent QCOM stock reeling since early October. Many now wonder whether QCOM constitutes a company in decline or a buying opportunity on one of the more significant 5G stocks.
Many signs point to the latter. Its newly released Snapdragon 855 positions Qualcomm to lead the way not only in 5G, but also many AI and graphics capabilities. Despite its dispute with Apple, the company can still sell to numerous other smartphone manufacturers on adopting the Snapdragon 855.
As for QCOM stock, its disputes with Apple and the failed merger have weighed on the equity. QCOM trades nearly one-third below its 2014 high. However, its forward P/E comes in at around 12. Analysts also forecast profit growth of 16.8% next year and for profit growth to stay in the double-digits in the years beyond.
Even if the stock languishes in the near term, they can earn a dividend yield of around 4.4%. This dividend has also risen every year for the last seven years. More likely than not, this streak will continue. Either way, 5G should lead the way in returning QCOM stock to a growth trajectory.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
