The expansion of 5G networks, which are up to 100 times faster than 4G networks, could generate strong tailwinds for handset makers, carriers, component makers, and other tech companies over the next decade. Grand View Research estimates the global 5G services market will be worth $41.5 billion this year, and grow at a compound annual growth rate of 43.9% between 2021 and 2027.
Back in August, I highlighted Ericsson, Qualcomm, and Skyworks Solutions as solid investments in this growing market. Today, I'll add three more promising names to that list: Apple (NASDAQ:AAPL), Qorvo (NASDAQ:QRVO), and T-Mobile US (NASDAQ:TMUS).
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1. Apple
Apple is widely expected to reveal the iPhone 12, its first 5G device, on Oct. 13. The tech giant is entering the 5G market later than Android rivals like Samsung, but Apple's prisoner-taking ecosystem and 5G carrier promotions could drive a lot of users to upgrade their iPhones.
Wedbush analyst Daniel Ives recently told investors the iPhone 12 "represents the most significant product cycle for Cook & Co. since iPhone 6 in 2014" -- Apple's best-selling iPhone to date. Therefore, Apple's iPhone sales, which grew just 2% year-over-year to $111.3 billion in the first nine months of 2020 and accounted for 53% of its top line, could accelerate significantly in 2021. That growth could feed the expansion of its other businesses -- including its services ecosystem and linked devices like AirPods and Apple Watches -- and lock in more users while widening its moat.
Analysts expect Apple's revenue and earnings to rise 13% and 19%, respectively, next year. The stock is reasonably valued at about 30 times forward earnings, and the company still has plenty of room to raise its dividend yield of 0.7%, which used up just 20% of its free cash flow over the past 12 months.
2. Qorvo
Qorvo, like its rival Skyworks, is a major Apple supplier. Qorvo generated 33% of its revenue from Apple last year, compared to 51% for Skyworks. Both companies produce a wide range of wireless chips, including front-end RF (radio frequency) modules.
Image source: Getty Images.
During last quarter's conference call in late July, Qorvo claimed its RF content share gains in each 5G smartphone ($5 to $7 per device) were offsetting the industry's lower smartphone shipments, which were throttled by pandemic-related disruptions and longer upgrade cycles. Therefore, accelerating 5G smartphone sales next year should amplify those gains.
Qorvo's chips are also used in 5G base stations. It expects global deployments of 5G base stations to rise from over "three quarters of a million" this year to "more than a million" in 2021. Analysts expect those 5G tailwinds, along with the expansion of its next-gen WiFi 6 business, to boost Qorvo's revenue and earnings 10% and 11%, respectively, in fiscal 2021 (which ends next March).
For fiscal 2022, Qorvo's revenue and earnings are expected to grow 9% and 15%, respectively, which are robust growth rates for a stock that trades at just 18 times forward earnings. Skyworks, which has slightly lower growth rates, trades at over 20 times forward earnings.
3. T-Mobile US
T-Mobile US, which merged with Sprint earlier this year, recently surpassed AT&T (NYSE:T) as the country's second-largest wireless carrier after Verizon (NYSE:VZ) with 98.3 million customers. During last quarter's conference call, CEO Mike Sievert boldly claimed T-Mobile was "staring down Verizon with our sight set on the No. 1 spot."
But that's not all: T-Mobile also operates the largest 5G network in the U.S., which covers more than 250 million people across 1.3 million square miles. T-Mobile covers a wider area than AT&T and Verizon because its 600MHz low-band spectrum travels farther and penetrates structures better than its rivals' high-band mmWave spectrums.
T-Mobile plans to combine its low-band spectrum, the 2.5GHz mid-band airwaves it acquired from Sprint, and shorter-range, high-band mmWave signals to create the country's fastest 5G network. That ambitious goal makes T-Mobile the top domestic carrier to watch in the 5G race.
T-Mobile doesn't pay a generous dividend like AT&T and Verizon, but it's growing at a much faster clip. Analysts expect its revenue to rise 47% this year (thanks to the purchase of Sprint) and another 15% next year. Its earnings are expected to decline 53% this year, mainly due to 5G and acquisition-related expenses, but stabilize with roughly flat growth next year. The stock is reasonably valued at 28 times forward earnings, and it could still have plenty of room to run as the 5G market expands.
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October 09, 2020 at 10:30PM
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