How to choose 5G concept stocks? Why are these leading stocks worth paying attention to

As wireless communication technology evolves, from 1G in the 1980s to today’s 5G era, mobile networks have become the infrastructure of daily life. Along with the continuous expansion of 5G commercial deployment, investment opportunities derived from this communication technology have attracted widespread attention from the capital markets.

Understanding the 5G Industry Chain Structure

The concept of 5G (fifth-generation communication technology) is not limited to the technology itself but refers to the entire industry ecosystem related to this technology. The 5G industry chain can be divided into three segments:

Upstream: Component manufacturers, including base stations, antennas, radio frequency chips, optical modules, and other equipment providers

Midstream: Communication equipment manufacturers responsible for core network equipment and network coverage devices

Downstream: Service providers such as operators, terminal manufacturers, and internet companies

The core definition of 5G concept stocks refers to those companies involved in the application of 5G technology. Leading market position and outstanding performance are often referred to as blue-chip stocks.

Overview of Global 5G Blue-Chip Stocks

According to the global future communication index released by international index providers, top-ranked 5G concept stocks include Samsung, Apple, Cisco, Broadcom, Qualcomm, American Tower, Applied Materials, Verizon, Coli, Crown Castle, TDK Electronics, AT&T, MediaTek, Mavenir Technologies, Murata Manufacturing, Deutsche Telekom, and TSMC. These companies lead in different segments of the 5G industry chain.

Opportunities and Challenges of Investing in 5G Concept Stocks

Investment Advantages

Broad Industry Outlook: 5G is still in the early deployment stage. According to forecasts by international communication organizations, global 5G network coverage will expand from one-quarter of the population in 2022 to three-quarters by 2027. This provides long-term investors with ample development cycles to share industry growth dividends.

Diverse Technological Applications: 5G opens up new application fields such as ultra HD video, streaming games, virtual reality, creating vast commercial opportunities for related companies.

Strong Leading Companies: Listed companies involved in 5G are often industry leaders with substantial capital reserves and advanced technological accumulation. Most also maintain stable dividend policies.

Policy Support: Countries worldwide have elevated 5G development to a national strategic level, with various supportive policies continuously introduced.

Investment Risks

Insufficient Technological Maturity: Low base station coverage leads to high construction costs. Large-scale deployment still requires a longer time, and these factors will ultimately reflect in stock price fluctuations.

High Stock Price Volatility: Semiconductor and equipment manufacturing industries exhibit obvious cyclical characteristics. Stock prices are affected by multiple factors such as consumer upgrade cycles, corporate hardware investments, and technological breakthroughs, resulting in significant volatility.

Macroeconomic Risks: Global economic recession or recession expectations may negatively impact tech stocks.

Leading 5G Concept Stocks in Taiwan

Based on the Taiwan 5G Return Index rankings, the following five companies are key targets to watch:

TSMC (2330.TW)

As the world’s largest wafer foundry, TSMC’s market position is unshakable. News that Apple’s self-developed 5G baseband chips will use TSMC’s 3nm process suggests that the company’s 2023 performance is expected to see significant growth. Its leadership in 5G chip manufacturing provides a long-term investment rationale.

MediaTek (2454.TW)

MediaTek is the world’s fourth-largest chip designer, with outstanding performance in the 5G chip market. According to market research, the company’s global smartphone chip market share in 2022 ranked first, with 5G chip shipments increasing by over 20% compared to the previous year. As a growth highlight among 5G concept stocks, MediaTek’s revenue has hit new highs consecutively.

Delta Electronics (2308.TW)

Delta Electronics has laid out in both upstream and downstream segments of the 5G industry chain, involving components, network integrated circuits, and communication equipment. The company established Taiwan’s first 5G smart factory in 2021, promoting automation in production. In 2022, revenue reached NT$384.4 billion, up 22% year-over-year, setting a record high; in 2023, it paid a dividend of NT$9.84 per share, with 40 consecutive years of dividends.

UMC (2303.TW)

As a pioneer in Taiwan’s semiconductor industry, UMC is the first wafer foundry service provider in Taiwan and the first listed semiconductor company in the industry. In 2022, revenue was NT$278.7 billion, up 30% year-over-year, achieving three consecutive years of growth. Management indicates that the proliferation of 5G, IoT, and electric vehicle applications will drive long-term growth.

Chunghwa Telecom (2412.TW)

Chunghwa Telecom is a leader in Taiwan’s 5G operation sector. According to the latest statistics from the telecommunications regulatory authority, by the end of 2022, Chunghwa Telecom’s 5G users reached 2.447 million, ranking first in market share. The company’s profit in 2022 achieved three consecutive years of growth, with a net profit of NT$4.71 per share, ranking top among Taiwan’s “Big Three” telecom companies.

Taiwan 5G Stocks Comparison Table

Leading 5G Stocks in the US

Qualcomm (QCOM.US)

Founded in 1985, Qualcomm’s core technology laid the foundation for the modern mobile internet. As a global leader in wireless communication chips, Qualcomm will continue to promote 5G development through chip innovation. The cyclical nature of the semiconductor industry offers opportunities for swing trading.

Apple (AAPL.US)

Apple is one of the most valuable companies globally, with a current market cap of USD 2.61 trillion. As 5G technology gradually reaches consumers, Apple, as a terminal product provider, will benefit from the widespread adoption of 5G applications.

NVIDIA (NVDA.US)

NVIDIA creates high-end graphics processors widely used in gaming, AI, autonomous driving, and 5G. 5G networks support faster download speeds and higher traffic handling, with high-end GPUs being key devices to achieve this. NVIDIA’s development of new 5G markets has huge potential.

Ericsson (ERIC.US)

This Swedish telecom equipment company, founded in 1918, is a key player in global 5G infrastructure construction. Ericsson’s networks carry about 40% of global communication traffic. The company expects that by 2025, there will be 2.6 billion 5G users worldwide and aims to be “the first company to launch commercial 5G networks on four continents.”

AT&T (T.US)

AT&T is a giant in the US telecommunications industry, founded by Alexander Graham Bell. Currently, it provides 5G services in over 14,000 US towns. The company’s annual dividend yield is 5.61%, offering good value.

US 5G Stocks Comparison Table

Comparison of Investment Methods for 5G Concept Stocks

Besides directly purchasing individual stocks, investors can participate in 5G concept stock investments through:

Individual Stocks: Chosen independently by investors, with advantages in liquidity and trading convenience, but higher risk concentration and lower transaction costs.

Stock Funds: Managed funds that select a diversified portfolio of stocks, balancing risk and return, with moderate transaction costs and management fees.

ETF Index Funds: Passively track relevant indices, with low transaction costs and management fees, offering trading convenience but potential premium/discount risks.

Related 5G investment tools in Taiwan include Cathay Taiwan 5G+ ETF (00881) and Yuan Global Future Communication ETF (00861).

Outlook for 2023 and Future of 5G Concept Stocks

Based on multiple factors, 5G concept stocks still hold investment value in the medium term.

From an industry development perspective, 5G coverage continues to expand. Data from international communication organizations show that global 5G coverage population will grow from 25% in 2022 to 75% in 2027. In Taiwan, 5G user penetration still has significant room for growth; as of February 2023, there are 7.01 million 5G users, accounting for only 23%.

From policy environment, major economies worldwide have incorporated 5G into national strategic plans, with various supportive policies continuously introduced. Additionally, after the 2022 rate hike cycle, the slowdown in global interest rate increases will benefit tech stock performance.

Risks to watch include: potential recession impacts on tech stocks; evolving technical standards possibly leading to wasted investments; geopolitical factors affecting supply chains.

Frequently Asked Questions

What is the difference between concept stocks and industry stocks?

Industry stocks are classified based on industry sectors, while concept stocks are broader, including any companies involved in related business areas. The classification of concept stocks is somewhat subjective, often driven by market hotspots and investment themes.

What is the difference between 5G concept stocks and AI, Apple concept stocks?

They are categorized based on different themes but can overlap. For example, TSMC belongs to 5G, AI, and Apple concept stocks simultaneously because it serves the development of these fields.

What should I pay attention to before investing in concept stocks?

First, assess the proportion of the company’s business involved in the concept. Some listed companies may have only a small part of their business related to 5G but are still classified as 5G concept stocks. Second, even within the same concept, different companies occupy different positions in the industry chain and benefit to varying degrees, so careful selection of the most promising targets is essential.