After the presidential election, the U.S. and China trade war conflicts appear to have moderated. On the surface, the lower tensions could mean increased trade between the two superpowers. Conversely, opening trade talks again will benefit some sectors while hurting others. In the technology space, such as emerging 5G technology, the U.S. will want to step up protection for its highly valued intellectual property. If it does not do so, it could lose further ground against China.
In the race to dominate the telecoms networking market, the U.S. is racing to upgrade from 4G to 5G. So, it would benefit from the continued ban of Huawei equipment in U.S. infrastructure. That would give American firms chances to win supply deals with Verizon (NYSE:VZ) or AT&T (NYSE:T).
There are seven 5G stocks keeping an eye on Huawei. The companies are:
- Applied Materials (NASDAQ:AMAT)
- Cisco Systems (NASDAQ:CSCO)
- Ericsson (NASDAQ:ERIC)
- Intel (NASDAQ:INTC)
- Nokia (NYSE:NOK)
- NXP Semiconductors (NASDAQ:NXPI)
- Qualcomm (NASDAQ:QCOM)
Almost all of the stocks score well on quality and growth:
In the semiconductor space, Intel, Qualcomm, Applied Materials, and NXP Semiconductors cite the growth in artificial intelligence complementing 5G. 5G supplies low-latency data transfer on networks.
Those chip stocks all score well overall. They also have a high-quality score, based on such metrics as earnings per share change, sales growth, and EBITDA growth.
5G Stocks: Applied Materials (AMAT)
The 5G rollout will drive the demand for base stations and repeaters. 5G offers higher frequency signals, increasing bandwidth to 10 Gbps (gigabits per second) and data rates that are 10 times greater compared to 4G.
In the first quarter, the company highlighted the broader adoption of 5G handsets leading to silicon content in smartphones growing at double-digit rates. Chief Executive Officer Gary Dickerson said that the smartphone market is increasing demand for OLED screens. So, AMAT stock benefits from the increasing demand for OLED in devices, TVs, and IT applications.
Back in 2019, AMAT acquired Kokusai Electric for $2.2 billion. The company anticipated the race for more advanced processor demand from artificial intelligence and 5G technology.
According to simplywall.st, Applied stock has a fair value of around $106. Even though the value, based on its future cash flow, is close to the stock price, the semiconductor company is a compelling holding. It is diversified in the memory, AI, and 5G space and offers consistently strong quarterly growth. In Q1/2021, AMAT posted a 24% revenue growth from last year to $5.16 billion. It earned $1.22 a share, up 27% year-over-year.
Cisco Systems (CSCO)
Cisco would benefit from Huawei losing market share in the 5G market. Jonathan Davidson, a senior vice president, and general manager of Cisco’s Mass-Scale Infrastructure Group, highlighted its 5G offering to T-Mobile (NASDAQ:TMUS). The executive said it helped T-Mobile in its transition to a 5G standalone network.
Davidson said that customers perform upgrades once or twice a week on its cloud-native technology. Before that, appliance upgrades happened every six to 18 months. Cisco was slow to embrace the disaggregated infrastructure before. Now, it is finding opportunities to offer updates for their IP transport networks for 5G to operators.
Cisco is also embracing an open radio access network or RAN. This would increase its addressable market. John Chapman, a chief technology officer at Cisco’s Broadband Technologies unit, said, “We at Cisco have a lot more choices of where we can participate in this ecosystem.”
Ericsson discussed 5G’s importance to its fourth-quarter on a recent conference call. 5G is gaining momentum worldwide. So, as countries digitize their economies, Ericsson is there to offer operators 5G network solutions.
ERIC stock has a strong upside ahead as it competes with Huawei for market share in China. The firm is growing nicely in northeast Asia. But China is the largest 5G market in the world with more than 100 million subscribers. This helped drive its network sales by 20%. Gross margins improved to 43.5% in Q4, up from 41.1% YOY.
Ericsson is enjoying a high win ratio for its cloud-native 5G core portfolio. Its research and development costs are low. The product enhancements are driving demand, which lifts profitability.
Chief Financial Officer Carl Mellander said that met its target sales range of SEC230 billion to SEC240 billion thanks to continued high demand for its 5G portfolio. This grew by 10% YOY.
On Wall Street, the average price target is $16.50, according to Tipranks.
5G Stocks: Intel (INTC)
Known better for its computer processors, Intel is also embracing converging technologies with 5G. The 5G value chain embeds Intel technologies, from AI to edge computing.
Intel touches on every growth area in 5G technology. For example, 5G enables AI-driven businesses like cognitive reasoning and machine learning. So, 5G network growth will give Intel product sales a lift. In edge computing, businesses need processing power, more storage and faster networks.
Intel and Ericsson have an alliance for building an all-connected world. This covers the area of 5G, IoT, and cloud. As posted on Ericsson’s website, the two firms are enabling transformation “through 5G technology development, proof of concepts and industry initiatives.”
Intel has a partnership with Google (NASDAQ:GOOG) to accelerate cloud-native 5G. The partnership centers around three areas: easing the virtualized open radio access network, launching a new lab to innovate on cloud-native 5G, and simplifying the delivery of business applications to the network edge.
Nokia is, unfortunately, dealing with its low operating margins by cutting 10,000 jobs. It will use the savings to pivot its business to 5G.
On March 18, Nokia signed a 5G support deal with AT&T to deploy Nokia’s C-Band portfolio, giving the telecom firm a boost in network capacity and indoor and outdoor 5G coverage. It will also get Nokia’s MIMO antenna solutions and the next-generation AirScale baseband equipment. NOK stock should get a boost later this year or early next year when AT&T deploys the first phase of the C-Band spectrum.
In the chart, Nokia stock has a favorable value score. Investors dumped the stock steadily, sending the share price lower.
Just as Ericsson is targeting China markets, Nokia is doing the same. Last year, it did not win a single deal from operators. CEO Pekka Lundmark is hopeful that 5G product enhancements will improve its competitiveness. The Chinese 5G market is massive. Nokia cannot afford to miss out on growing in the region.
NXP Semiconductors (NXPI)
NXP Semiconductor offers investors diversification due to its four major end markets. They include automotive, industrial and Internet of Things, mobile and communications infrastructure.
The company announced a new-generation Airfast RF Multi-Chip Module (MCM) in December 2020. This extends frequency coverage to 4.0 GHz by using NXP’s LDMOS technology and integration design techniques. In its press release, NXP said the Airfast module has 20% more output power compared to previous models. So, it offers broader 5G coverage per base station tower. It is also more power-efficient by 45%.
Paul Hart, EVP and general manager of NXP’s Radio Power, said, “This translates into faster time to market for our customers and mobile network operators who are tackling the need for 5G expansion.”
NXP’s business is thriving so well that it announced a 50% increase in quarterly dividends. It is also adopting a $2 billion share buyback for 2021.
5G Stocks: Qualcomm (QCOM)
Qualcomm benefits greatly from Huawei’s 5G devices being shut out of many markets. It launched advancements on the modem-to-antenna system solution on its latest Snapdragon 5G mobile platform.
Ahead of the last quarterly report, shares peaked at $167.94 in early February. The downtrend created an attractive entry point on QCOM stock. Despite the results, Qualcomm still increased its dividend by 5%, to $2.27 a share annualized. The firm posted revenue of $8.24 billion, up 62.2% YOY. CEO Steve Mollenkopf said, “We delivered an exceptional quarter, more than doubling earnings year-over-year due to strong 5G demand in handsets and growth in our RF front-end, automotive and IoT adjacencies.”
The 5G ramp continues and will further support Qualcomm’s strong revenue growth.
Chart Courtesy of Stockrover
In the chart, Qualcomm’s EPS growth is more than double that of the industry. The longer-term sales growth averages exceed the industry by a wide percentage, too.
Qualcomm’s 88/100 score on growth will likely rise as the 5G adoption continues.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.