There's no big bang coming for investors from 5G wireless services,
one Wall Street analyst said Tuesday. The reason: A big run for 5G
stocks may not be in the cards because a killer app for 5G network
buildouts isn't clear.
Jefferies analyst George Notter says wireless firms AT&T (T), Verizon Communications (VZ), T-Mobile US (TMUS) and Sprint (S)
will rein in capital spending on 5G wireless networks until revenue
streams are clear. Notter also says AT&T, Verizon, T-Mobile and
Sprint will continue investing in current 4G networks.
"We're negative on prospects for a 5G investment cycle from wireless
operators," Notter said in a report to clients. "Based on our analysis,
we think the return on investment associated with 5G capex investments
is significantly less attractive than it was for prior 3G and 4G
investments. Hence, we expect that any 5G cycle will be muted — at least
over the next 2-3 years until business models further develop."
Other analysts have said there's a broad range of potential 5G stocks
including semiconductor firms, fiber-optic gear suppliers, and network
equipment makers that could get a boost from 5G spending. The market for
5G semiconductors will boom to nearly $19 billion by 2022, up from $593
million last year, Bank of America/Merrill Lynch said in a March
Jefferies' Notter, though, is cautious.
5G Stocks: Return On Investment Not Clear?
"To be clear, we still believe that 5G infrastructure deployment will
happen," he said. "We expect that it will simply be a cutover of
existing 4G investments to 5G technology. Most importantly, we don't
expect the overall capex spending pie will grow as a result of 5G
In an earlier bearish report, S&P Global Ratings last year warned that AT&T, Verizon
and other wireless firms planning 5G wireless services could wait five
to 10 years for a payback on investments. Consumers may resist higher
service fees on faster 5G wireless speeds for video streaming, S&P
However, the wireless firms are also eyeing private 5G business
services. Long range, pundits expect 5G to have a role in manufacturing
automation, cloud gaming, autonomous vehicles, drones and remote health
5G Investment Cycle To Disappoint?
Notter says investors will need to be patient with 5G stocks. His own top 5G stock picks include Ciena (CIEN), Lumentum Holding (LITE) and Xilinx (XLNX).
"We believe Street views are too positive on the notion of a 5G
investment "cycle" — where the size of the overall investment pie grows
materially," he said.
"We think the industry conditions associated with an attractive
return on investment for wireless equipment capex were highly present in
2001 and 2009. They're not present in 2019."
Follow Reinhardt Krause on Twitter @reinhardtk_tech.