The pace of 5G adoption has been slower than expected, but there may still be opportunities.shaunl/iStockPhoto / Getty Images
Remember when 5G wireless mobile service was going to usher in the age of remote surgery and robot cars?
In 2016, the rollout of fifth generation (5G) wireless mobile networks promised to bring new technologies once thought to be the domain of science fiction – from self-driving cars to surgeries conducted by doctors thousands of kilometres from the patient.
“We still haven’t seen that wave of innovative new uses for the technology. 5G is still largely seen as a faster version of wireless services that came before it,” says Carmi Levy, an independent technology analyst.
The world’s telecommunications providers, equipment makers and other related industries have managed to create an infrastructure that provides bandwidth to allow mobile streaming to more than 90 per cent of the world, but Mr. Levy says there’s more to come.
“The 5G rollout – if not completed – is well on its way. Some telecoms are even marketing their next generation, 5G plus,” he says, blaming the 2020 pandemic and lockdowns for the delay.
In addition to easy streaming on platforms such as Zoom, he says 5G has already opened up applications not possible on slower connections.
The pace of adoption has been slower than expected, he says, but the opportunity is still there. “It’s just on a longer timeline than we originally anticipated.”
Now, the rapid growth of artificial intelligence (AI) is creating demand for new high-bandwidth applications and the networks to support them.
“The need is certainly there and it’s only going to grow,” Mr. Levy says.
5G has mostly paid off for investors and advisors who saw the writing on the wall. Since 2019, shares in 5G global telecom titans including Deutsche Telekom AG DTEGY, Samsung Electronics Co. Ltd. SSNLF, Softbank Group Corp. SFTBY, T-Mobile US Inc. TMUS-Q and Qualcomm Inc. QCOM-Q have seen big gains.
In contrast, Canada’s main telco stocks – BCE Inc. BCE-T, Rogers Communications Inc. RCI-B-T and Telus Corp. T-T – have declined.
The rollout has also added to the rally in handset makers and equipment providers such as Qualcomm and Nvidia Corp. NVDA-Q.
Peter Hofstra, portfolio manager and co-head of equities research at CI Global Asset Management, says the bandwidth rally for the telecom sector has run its course.
“When you bring a new technology forward, your window to make money is pretty narrow,” he says.
Mr. Hofstra says satellite services such as those from Elon Musk’s Starlink and Amazon.com Inc. AMZN-Q, and strong deployment of physical connections such as fibre optic lines, have presented alternatives to access broadband.
Mr. Hofstra, who manages the $1.4-billion CI Global Alpha Innovators Corporate Class fund, currently has his portfolio weighted toward the spinoffs from AI.
“This is now an AI world,” he says. “It’s not so much about access to the internet.”
One of his core holdings is Nvidia, which he says will continue to reap the benefits of broader bandwidth, AI and whatever comes next.
“AI personas are being created to help with peace negotiations in Gaza, Iran and Russia. That’s all being enabled by Nvidia,” he says.
He also sees continuing growth from device makers such as Apple Inc. AAPL-Q. “These businesses are wildly profitable.”
With profitability, however, comes high valuations. Many of the companies in Mr. Hofstra’s portfolio have doubled or tripled since the 5G rollout began.
“You have to pay up,” he says. “You have to believe there is good growth for years to come to believe that today’s prices are reasonable.”
Investing in tomorrow’s tech darlings
Spotting the companies that will benefit most from whatever comes next in technology isn’t easy.
For example, Cathie Wood’s Ark Innovation ETF ARKK-A saw huge gains early in the pandemic that later fizzled out.
“5G is yesterday’s news,” says Mark Yamada, president of PUR Investing Inc. “It’s now just a tiny part of the AI infrastructure.”
His advice to investors and advisors is to avoid getting too focused on the latest trend and cast a wide net through broad exchange-traded funds.
“The reason you’re investing in the stock market is exposure to growth in the economy. I can safely say a lot of that growth is going to come from AI initially, and it’s going to spread through the various industries,” he says.
Mr. Yamada suggests going with an ETF that tracks the Nasdaq 100, which includes a broad swath of technology companies and some that are normally not considered technology.
He says AI will even have a ripple effect on the entire S&P 500 – a mix of every major sector.
“The best way to invest in it is to go to an index where you’re going to get exposure to what’s hot now,” he says.
Mr. Yamada points to the so-called Magnificent Seven tech giants as an example of how a few companies can seemingly come out of nowhere as technology advances.
“For investors, it’s going to be fast. Not only will it create billion-dollar companies overnight, but it will destroy companies by next Thursday,” he says.