Thanks to increased interest in AI stocks, 5G has taken off the spotlight. There isn’t as much strong interest in buying 5G stocks as there was a few years ago.
However, the rollout of 5G around the world is not without opportunities.
CNBC We recently reported that the telco is already talking about 5.5G or 5G Advanced, even though it hasn’t completed the rollout of 5G around the world. Products equipped with 5.5G include: apple (NASDAQ:AAPL) Vision Pro Mixed Reality Headset.
With 5G connections expected to reach 5.5 billion connections by 2030 from 1 billion connections by the end of 2022, telecom and related companies have ample opportunity to generate revenue from existing 5G technology. Masu.
Experts suggest that funds invested in 5G may not achieve the expected return on investment until 5.5G is rolled out.
The winners of 5G will be the companies that build the bridge to 6G. He shares three 5G stocks you should add to your Q2 watch list.
AT&T (T)
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AT&T (New York Stock Exchange:T) is starting to turn a corner after separating its Time WarnerMedia business and merging it with Discovery Communications in April 2022. This move significantly reduced the news agency’s debt situation.
As the company grows its 5G and fiber businesses, it is accelerating the repayment of its remaining debt while returning capital to shareholders through share buybacks and dividends.
The company added more than 1.7 million postpaid wireless customers in 2023, with average revenue per user increasing significantly. In addition, in 2023 he added 1.1 million new fiber optic customers. The company’s 5G network currently covers more than 210 million people in North America.
A major factor in its success is cost reduction. By mid-2023, on an annual basis, he will have achieved more than $6 billion in cost savings, with an additional $2 billion planned. This resulted in annual free cash flow of $16.8 billion. At the midpoint of guidance, it should be $17.5 billion in 2024.
Based on an enterprise value of $287.1 billion, the free cash flow yield is 6.1%. 4% to 8% is fair value. The yield is 6.5%, which is a better deal than in recent years.
A big part of that is due to 5G.
Broadcom (AVGO)
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In 2018, broadcom (NASDAQ:AVGO) has pledged to create a $1.5 billion fund to invest in and train the next generation of engineers who will drive the growth of wireless technology and make the United States a world leader.
it was part of the interim purchase Qualcomm (NASDAQ:QCOM) was traded for $117 billion, but quickly lapsed after the Trump administration vetoed the deal, citing national security concerns.
Fast forward five years.
Some very interesting things are happening in AI, with Broadcom unveiling a new XPU design at its Investor Day on March 23rd that will likely be the world’s largest AI chip built for a consumer AI company. However, it still generates significant revenue from 5G.
In May 2023, Broadcom will sign a multi-year agreement with Apple to purchase billions of wireless network components from Broadcom, including modules that power 5G network connections. Broadcom generated 20% of its $35.82 billion in revenue in 2023 from its relationship with Apple, with its next four largest customers accounting for an additional 15%.
Apple’s 5G-related revenue is part of the company’s Semiconductor Solutions division, which accounts for 79% of its total revenue. Apple accounted for 25% of the sector’s sales in 2023.
And that Nvidia (NASDAQ:NVDA) could be the two biggest winners of AI and 5G.
Nvidia (NVDA)
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Nvidia’s website has a section explaining its AI-on-5G platform.
“NVIDIA AI-on-5G is a unified platform that brings together AI and 5G development at the edge to accelerate digital transformation for businesses across all industries,” the company said.
“5G will provide the underlying connectivity for billions of devices, extending the reach of AI algorithms and applications to all connected objects at the edge, enabling new use cases and new markets.”
Last October, forbes Contributor Steve McDowell described the first GPU-accelerated commercial Open RAN 5G network built on Nvidia, Fujitsu, and Wind River technologies. Japanese telecommunications company NTT Docomo’s network reduces total cost of ownership (TCO) while increasing energy efficiency.
Nvidia’s role in 5G networks includes the use of the Aerial platform and BlueField Converged Accelerators.
It could not say what kind of revenue it will generate directly from its 5G activities, but it is part of the company’s data center market, which accounted for 78% of its $60.9 billion in revenue in fiscal 2024.
As the telecommunications industry moves to 5.5G and 6G, the need for accelerated computing will grow even more. His Nvidia’s ability to deliver this accelerated computing at scale is another reason to own the company’s stock for the long term.
Nvidia stock may seem expensive at 7x cash flow, but its PEG ratio of 1.55 is nearly 40% lower than its average over the past five years, suggesting it’s worth paying for its growth.
On the date of publication, Will Ashworth did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author; investorplace.com Publishing guidelines.
