The 5G Build-out Supports a Broad Band of Global Investment Opportunities

Alex Wolf, CFA

As we look to invest in the technology sector and long-term secular winners, we emphasize companies aligned with the durable themes and trends that we believe are most crucial to driving technological innovation and to improving all our lives. These companies are advancing a digital world that is influenced increasingly by automation, AI, data consumption, cloud services, software as a service, e-commerce, and online consumer services.

A global approach gives us advantages in accessing these trends and capitalizing on the growth opportunities of technology companies. As we discussed in our 2020 post on 5G and global tech investing, many of the most important technology trend leaders are based outside the United States. (See “Investing in Technology Innovators: The Benefits of a Global Approach.”)

As the 5G build-out advances, we’re identifying investment opportunities much broader than just the companies that are directly building networks and infrastructure.  5G’s impacts will be much larger than that and will be felt across a variety of companies and industries.

As 5G progresses around the world, we are starting to see tangible impacts on consumers and businesses. We view 5G as an incremental driver of many of our existing long-term tech themes. Ultimately, 5G will work harmoniously with cloud computing and software by pushing processing closer to end users. E-commerce and payment offerings will become even easier to use with better global mobile phone access. Mobile gaming and video capabilities will also continue to improve, as capabilities like virtual reality and augmented reality are enhanced. Lastly, 5G has implications for more industrially oriented industries and will further drive smart manufacturing, remote healthcare, and autonomous driving.

Source: Opensignal.com, “Benchmarking the Global 5G Experience—April 2021,” April 15, 2021. Data collection period: January 1 to March 31, 2021

Certain countries have already made great progress on 5G. In countries like South Korea, improvement in speeds and availability is leading to increased data usage. Governments around the world will continue introducing incentives to encourage 5G spending, with many countries using 5G as an avenue to fight for technological supremacy and autonomy. For example, we expect 5G to be a significant part of the EU Recovery Fund, and China is highly focused on it as well. We see an attractive runway for investing in 5G extending over the next several years, and we would expect enhancements to network infrastructure to continue on an ongoing basis.

Source: Opensignal.com, “Benchmarking the 5G Experience — Asia Pacific — June 2021,” June 14, 2021. Data collection period: March 1–May 29, 2021.

How We Are Investing in the 5G Opportunity

From an investment standpoint, we are most focused on the companies that benefit from increased data usage and transmission along with improved connectivity in all our lives. These companies include a variety of semiconductor and memory manufacturers, cloud services, automation, mobile gaming, e-commerce, and payment companies. IT service companies can also benefit, including those companies that help businesses navigate their 5G investments and provide the key tools for the build-out. Japan offers significant opportunities as it tries to catch up in 5G investment as part of broader digitization initiatives. The most advanced phones and data centers will need the most cutting-edge semiconductors to use 5G.

Conclusion

Looking at 5G through the lens of our long-term themes has allowed us to identify beneficiaries that have fallen under the radar for many investors. These companies are at the core of producing and enabling key technologies that allow for the highest level of computing and processing, with 5G helping bring those technologies closer to the end users and into their daily lives.