The future of the internet as we know it is tied to 5G wireless networks that are being connected around the world. That’s great news for 5G stocks.
Fifth generation, or 5G, wireless started being deployed in 2019 and is forecast to have nearly two billion subscribers around the world by 2025, according to GSM Association. The successor to 4G wireless, 5G networks promises to have lightning-quick download speeds and help advance everything from self-driving cars and artificial intelligence to the Internet of Things (IoT).
In short, 5G is expected to propel society headlong into the future, making things that have only been talked about until now a reality. While it is still early days for the 5G revolution, there are already winners and losers emerging in the race to connect us all to the latest and greatest version of the internet.
In this article we look at 5G stocks that are falling behind.
5G Stocks That Are Falling Behind: Qualcomm (QCOM)
QCOM stock has been heading in the wrong direction this year, down 16% since Feb. 2. Today, QCOM stock is trading at $134 a share.
The depreciation in the share price has come despite the company posting better-than-expected first quarter earnings and positive forward guidance. The decline can be partly attributed to profit taking and the current rotation of investors out of technology stocks.
But there are some other issues at play here too.
There is a global shortage of the processor microchips used to power everything from cars to smartphones, and the shortage has hit Qualcomm hard. Recent media reports claim that San Diego-based Qualcomm, which manufactures semiconductors and software that run wireless technology, is struggling to meet demand for the latest Android enabled smartphones due to the chip shortage.
Another issue impacting the price of QCOM stock is news that Apple (NASDAQ:AAPL) is planning to develop its own 5G smartphone modems, which would replace the Qualcomm Snapdragon X55 modem that is currently found in iPhones. Until these issues are resolved, a cloud is likely to hang over Qualcomm and its shareholders.
Sad but true, once mighty Finnish telecommunications giant Nokia is now a penny stock. NOK stock has been pretty well flatlined for the past five years.
It peaked at $6.55 a share in late January when it was briefly targeted by the r/WallStreetBets crowd on Reddit. But the share price has since dropped back down to $4.20 a share, roughly the same level it was at in 2016. Many analysts had expected Nokia to rebound with the expansion of 5G wireless networks, especially in markets outside the U.S.
Unfortunately, that 5G bump has yet to materialize.
Nokia’s woes can be traced back to its 2016 acquisition of rival Alcatel-Lucent, which it did to expand its network business and global market share. Unfortunately, the $16.6 billion Alcatel-Lucent deal sent Nokia into cost-cutting mode and it fell behind in its 5G investments.
The company suspended its dividend in late 2019 and diverted the money to its 5G unit, but that effort looks like it has come too late. Nokia has said that it expects its revenue to decline as much as 6% this year and has characterized 2021 as “a year of transition.” Not good.
5G Stocks That Are Falling Behind: Ericsson (ERIC)
Ericsson is another one of those 5G stocks that should be performing better. The Swedish company has seen its stock fall a rise 1% in the past month to $13.75 per share.
While Ericsson isn’t performing as poorly as rival Nokia, the company has not lived up to expectations when it comes to the deployment of 5G networks.
Ericsson Chief Executive Officer Borje Ekholm recently criticized European regulators and politicians for the slow and inconsistent roll out of 5G wireless on the continent, saying that Europe has a “non-functioning” telecoms market and is falling behind the U.S. and China when it comes to next generation internet penetration.
In short, Ekholm feels that excessive bureaucracy and red tape are preventing the needed consolidation of telecom companies in Europe and preventing countries from introducing the infrastructure needed to run 5G wireless. This despite the fact that 5G wireless is forecast to boost the eurozone’s gross domestic product (GDP) by two percentage points annually.
Maryland-based telecommunications networking equipment and software supplier Ciena should be surfing a 5G wireless tsunami all the way to the bank. However, the investor rotation into cyclical, energy and industrial stocks, coupled with soft forward guidance from the company, have conspired to send CIEN stock down 7% from its 52-week high. The company’s share price is now $57.
In its most recent earnings report, Ciena, which manufactures optical communications network gear, said its adjusted earnings were flat from a year earlier at 52 cents per share. The company’s revenue fell 9% to $757.1 million. Worse, for the current quarter, Ciena issued weak guidance, saying that it expects revenue of about $810 million, below the consensus estimate of analysts for revenue of $828 million.
The downbeat situation seems to be due to the fact that businesses and commercial clients halted technology investments during the global pandemic. Ciena said late last year that it has experienced “a meaningful slowdown in orders.” Investors have been hitting the “sell” button ever since.\
Here’s hoping there’s a meaningful turnaround this year.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.