Here are eight stocks benefiting from the 5G boom.
The rollout of 5G wireless networks and 5G-capable devices is one of the largest near-term growth trends in the tech world. Wireless providers are already testing and rolling out 5G networks, which allow for faster, higher-quality internet connections, greater global connectivity, increased capacity for advanced connected software applications and less latency for users. Bank of America estimates that the 5G wireless deployment cycle is less than three years old, and wireless network upgrades have provided a roughly 10-year investment opportunity in the past. Here are eight of Bank of America’s top 5G stocks to buy.
Marvell Technology Inc. (ticker: MRVL)
Marvell Technology is a semiconductor company that provides solutions for the data storage, communications and consumer markets. Analyst Vivek Arya says an acceleration in the global 5G rollout should allow Marvell to gain radio access network, or RAN, market share from China’s Huawei. Marvell is exposed to some of the top growth trends in tech, including cloud computing and advanced autos. Following Marvell’s recent analyst day, Arya said it is well positioned to deliver at least 15% annual revenue growth and 25% annual earnings per share growth through 2024. Bank of America has a “buy” rating and an $80 price target for MRVL stock, which closed at $67.70 on Oct. 27.
Analog Devices Inc. (ADI)
Analog Devices makes high-performance integrated circuits used in signal processing applications. Arya says Analog Devices should also gain RAN market share from China as the global 5G rollout progresses. The company completed its acquisition of Maxim in September, and the combined company projects long-term annual sales of $10 billion. Arya projects that free cash flow will double in fiscal 2022 and exceed $4 billion by fiscal 2023. He says investors should expect excess free cash flow to be paid back to investors via dividends and buybacks. Bank of America has a “buy” rating and a $210 price target for ADI stock, which closed at $170.46 on Oct. 27.
Qualcomm Inc. (QCOM)
Qualcomm is a semiconductor company that specializes in advanced wireless broadband technology and is the market leader in producing 5G modems. Analyst Tal Liani says Qualcomm’s impressive 114% growth in radio frequency, or RF, revenue in the most recent quarter was driven by 5G deployments and millimeter wave rollouts. Liani says both of those growth trends will accelerate in 2022. Qualcomm’s automotive silicon and internet of things revenue growth have also been strong — two growth sources that Liani says are sustainable in the long term. Bank of America has a “buy” rating and a $200 price target for QCOM stock, which closed at $131.20 on Oct. 27.
Broadcom Inc. (AVGO)
Broadcom is one of the world’s largest diversified analog semiconductor device suppliers. Arya says Broadcom is a top 5G stock pick because the company has significant exposure to 5G infrastructure development. Arya says Broadcom may not have the “sizzle” of some of its higher-growth semiconductor stock peers, but its impressive 75% gross margins and $13.77 billion in projected 2021 free cash flow make the company one of the largest cash cows in tech. Bank of America has a “buy” rating and a $580 price target for AVGO stock, which closed at $523.11 on Oct. 27.
Teradyne Inc. (TER)
Teradyne designs automated semiconductor, telecom and industrial testing equipment. Arya says Teradyne is a play on the accelerating complexity of 5G semiconductor testing. Teradyne estimates the market for semiconductor testing in 2021 is worth about $4.5 billion, including $1.8 billion for smartphones and $1 billion for computing. Arya says Teradyne is also highly exposed to the advanced auto technology market, where demand continues to significantly outpace supply. Finally, Arya says Teradyne has only about 2% penetration of the potentially massive industrial automation market. Bank of America has a “buy” rating and a $165 price target for TER stock, which closed at $123.07 on Oct. 27.
Qorvo Inc. (QRVO)
Qorvo manufactures RF integrated circuits for wireless communications applications. Arya says the acceleration of 5G base station builds has been a tail wind for Qorvo’s business. He estimates Qorvo has more than 10 times the content opportunities in 5G network infrastructure that it did in 4G networks, a phenomenon that is driving double-digit growth in the company’s non-mobile revenue. Arya says 5G infrastructure investments in the U.S. and Europe will accelerate in 2022. Qorvo has also significantly dialed back its Apple Inc. (AAPL) exposure, reducing risk. Bank of America has a “buy” rating and a $225 price target for QRVO stock, which closed at $165.27 on Oct. 27.
NXP Semiconductors NV (NXPI)
NXP Semiconductors specializes in high-performance, mixed-signal chips and is a leader in 5G power amplifiers. Arya says NXP has multiple bullish catalysts, including auto content expansion, rising gross margins and robust free cash flow. He estimates that NXP can reach $12 to $15 in annual earnings per share in the long term. U.S. 5G rollouts are boosting the company’s communications revenue, which accounts for 16% of its overall sales. Meanwhile, Arya says NXP can outgrow its auto chip competitors, gaining market share in a challenging business environment. Bank of America has a “buy” rating and a $240 price target for NXPI stock, which closed at $192.41 on Oct. 27.
MACOM Technology Solutions Holdings Inc. (MTSI)
MACOM Technology Solutions supplies high-performance analog RF, microwave, millimeter wave and photonic products used in networking. Arya says MACOM has an underappreciated opportunity in its telecom business, which accounts for about 30% of total sales. He says the company’s 5G base station mix will improve in 2022 as rollouts in the U.S. and Europe accelerate. In fact, he projects double-digit telecom sales growth in 2022. Gross margins reached record levels in the most recent quarter as management continues to emphasize high-margin product designs. Bank of America has a “buy” rating and a $70 price target for MTSI stock, which closed at $66.12 on Oct. 27.
Best 5G stocks to buy in 2021:
— Marvell Technology Inc. (MRVL)
— Analog Devices Inc. (ADI)
— Qualcomm Inc. (QCOM)
— Broadcom Inc. (AVGO)
— Teradyne Inc. (TER)
— Qorvo Inc. (QRVO)
— NXP Semiconductors NV (NXPI)
— MACOM Technology Solutions Holdings Inc. (MTSI)