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5G Chipset Market Humming: 3 Solid Buys

Manaswita Ghosh Dutta

Fifth-generation (5G) chipset market is set to gain immensely, especially, in the United States as the country is impatiently awaiting its arrival. Increase in demand for high-speed Internet, advancement in IoT and the recent spike in government initiatives for better rural connectivity are helping the 5G chipset market gather steam.

5G Chipset Market’s Impressive Outlook

According to Markets and Markets report, the 5G chipset market is estimated to be worth $22.41 billion by 2026 and is valued at $2.03 billion for 2020. Thus, the 5G chipset market is expected to witness a compounded annual rate of 49.2% during the forecast period.

The market has been projected till 2026, given that the commercialization of the 5G technology takes place in 2020.

5G Networks Offer High Speed, Wider Connectivity

To begin with, the 5G chipset market and 5G networks go hand in hand. Therefore, technological advancement and growth in commercialization of 5G networks will allow the 5G chipset space to gain immensely.

5G chips will be an essential component of the upcoming 5G-enabled devices such as smart phones, laptops and routers, and that’s the primary reason for this market’s remarkable growth projection. At present, customers are patiently awaiting 5G technology’s rollout. Once that is through, a surge in demand for 5G-enabled devices will be inevitable.

After all, the selling point of 5G networks is its ability to offer high-speed Internet and wider connectivity. 5G networks are expected to be 10-20 times faster than 4G with near-impossible latency detection. Simply put, a user can’t notice the lag time a webpage/video/game takes to load.

Since smart phones have become the most preferred medium of online services such as audio and video streaming, running business applications and file sharing, demand for 5G-enabled smart phones will be higher and in turn boost 5G chipset as well.

Noting this, Apple AAPL and 5G chipmaker Qualcomm QCOM have teamed up to launch iPhone 5 next year. While 5G networks aren’t expected to replace 4G networks in a major way before 2020, the 5G-enabled smart phone and 5G chipset markets will gain traction from the very beginning.

Advancement in AI, IoT to Push 5G Chipset Market

5G is expected to enhance the spectrum, allowing it to support everything from broadband services to IoT, which will drive the widespread use of new mobile-driven applications. These applications may consist of industrial automation as well.

This is how 5G will raise the establishment of smart phone applications across verticals such as transport, automation, retail, manufacturing, finance and healthcare. 5G’s faster wireless connectivity will be a boon for new technologies such as driverless cars and augmented reality. As IoT products improve with enhanced AI, 5G will enable its smooth application, ultimately boosting the 5G chipset market.

Trump Administration’s 5G Initiatives

Thanks to United States and China’s race to win the 5G race, the U.S. government has been taking various initiatives to secure the crown.

First, the Trump administration intervened in Singapore chipmaker Broadcom’s AVGO takeover of Qualcomm last year. The acquisition could have caused a significant reduction in Qualcomm’s 5G research and development, allowing China to have an upper hand in developing 5G networks.

Secondly, President Donald Trump and Federal Communications Commission (FCC) Chairman Ajit Pai announced a plan earlier this week to enhance 5G by auctioning more spectrum. The FCC also created a $20.4 billion fund called Rural Digital Opportunity Fund, aimed at assisting telecom companies to expand into rural America.

Finally, the Trump administration will also decrease barriers created by regulations. This will allow private companies to take more charge in the 5G domain, equally boosting the 5G chipset market.

Our Choices

The impressively broader market for 5G chipsets has created new opportunities for several key players in the industry. We have chosen three stocks that are poised to benefit from the emergence and implementation of these chipsets. All the stocks mentioned below carry a Zacks Rank #2 (Buy).

Xilinx, Inc. XLNX manufactures 5G radio-frequency chips, orders for which are expected to rise 50% year over year in 2019, according to a report by Mizuho.

Xilinx’s expected earnings growth rate for the current year is 23.7% compared with the Zacks Semiconductor – Programmable Logic industry’s projected rise of 23.4%. The company’s stock price has given a return at par with the broader Semiconductor – Programmable Logic Market over the past one year period (+109.3%). You can see the complete list of today’s Zacks #1 Rank stocks here .

Cisco Systems, Inc. CSCO provides vital internet infrastructure. The company implements what it refers to as “Cloud-to-Client” approach to 5G. Cisco’s determination to modify networks end-to-end makes its products an important aspect of faster 5G delivery.

Cisco Systems’s expected earnings growth rate for the current year is 17.7% compared with the Zacks Computer – Networking industry’s projected decline of 0.4%. The company’s stock price has outperformed the Computer – Networking Market over the past one-year period (+26.3% vs +23.8%).

Qorvo, Inc. QRVO offers innovative radio-frequency solutions and is looking to expand its portfolio of RF products for 5G networks. The company’s new products will allow transmission of multiple data streams with more capacity, allowing the faster implementation of 5G networks, according to Qorvo.

Qorvo’s expected earnings growth rate for the current year is 17.4% compared with the Zacks Semiconductors – Radio Frequency industry’s projected rise of 11.2%. The company’s stock price has outperformed the Semiconductors – Radio Frequency Market over the past one-year period (+8.4% vs -2.0%).

In fact, Xilinx, Cisco and Qorvo have outperformed the broader S&P 500 so far this year.

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Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report

Qorvo, Inc. (QRVO) : Free Stock Analysis Report

QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report

Apple Inc. (AAPL) : Free Stock Analysis Report

Broadcom Inc. (AVGO) : Free Stock Analysis Report

Xilinx, Inc. (XLNX) : Free Stock Analysis Report

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