5G and How to Invest in New Technologies

Fifth-generation wireless, or 5G, is the latest
cellular network technology to be introduced to the world. It’s engineered to greatly increase the
speed and responsiveness of wireless networks. So how fast is 5G? Just imagine downloading an entire HD movie
to your phone in seconds without Wi-Fi. But 5G could impact a lot more than your viewing
habits. Like most new technology, it has the potential
to transform businesses and impact financial markets. While it’ll be years before 5G coverage
is established nationwide, investors may want to start thinking about its future implications
now. While past performance does not guarantee
future results, every new generation of wireless technology has led to new products, companies,
and investment opportunities. Remember what happened when the industry switched
from 2G to 3G in the 2000s? Before 3G, most cell phones were primarily
used for calls, texts, and email. But 3G’s increased bandwidth changed the
capabilities of mobile phones for years to come. An early example of this was Apple’s iPhone
3G. Released in 2008, the 3G introduced new mobile
features like faster web browsing, turn-by-turn GPS, location-based services, and video on
demand. It set the standard for all future smartphones
and created an ecosystem of parts suppliers, retailers, and businesses reliant on the mobile
experience. Fast forward to 2019. 5G promises significant improvements, which
has the potential to enable instantaneous communication between all connected devices. Just imagine yourself in a driverless car
where every vehicle is connected to each other, the road, and traffic management systems. A sensor could recognize a hazard on the road
and tell a cloud-based server about the danger in the blink of an eye. This is just one of many use-cases that could
lead to exciting innovation. And, although 5G is still in its infancy,
there are a few ways to think about investing in a new technology. First, you can look at companies that create
5G compatible devices. For example, the new technology could lead
people to upgrade their phones, which could benefit smartphone manufacturers, chipmakers,
and parts suppliers. But it goes beyond phones. 5G could also support The Internet of Things,
or I-o-T, which is the concept of an interconnected network of wearables, machines, buildings,
automobiles, and other devices. Investors can look at specific companies within
this ecosystem, or diversify across a larger group by finding ETFs focused on I-o-T. Second, investors can focus on the companies
and areas of the economy that will build the infrastructure for 5G. For example, delivery of 5G service will require
wireless carriers to invest in more cell towers, nearly doubling the current amount of towers
and cell sites. This could potentially drive revenue growth
for cell tower REITs. REIT stands for Real Estate Investment Trust,
which is a type of company that owns or finances income-producing real estate. If these cell phone tower sites generate more
revenue than expected, or greatly expand, it could potentially lead to future gains
for certain REITs. However, investments in REITs and other real
estate securities are subject to the same risks as direct investments in real estate,
including loss of principal. And lastly, investors should keep their eye
on businesses that could be disrupted by 5G. The most obvious is internet service providers. 5G’s speed will rival Wi-Fi and may be powerful
enough to provide internet for your entire household. Just as people have cut their cable cord,
internet service might be next. However, there are always risks for investors. Even though 5G will be a game-changing technology,
companies involved in 5G aren’t guaranteed to be successful. Warren Buffett used the auto industry as an
example of the low probability of success. Buffett noted there have been thousands of
U.S. car makers, but only three survived from the early days: Ford, General Motors, and
Chrysler. He went on to say, “When you saw what was
going to happen with the auto in 1905 you should have gone short horses..it’s easy
to figure out the losers. The winner was the auto overall. But 2,000 companies just about failed.” Market timing is another risk for investors. For example, had you bought Verizon stock
when 3G was announced in 1998, there’s a good chance you took heavy losses when the
dot-com bubble burst. Not to mention, 3G took nearly a decade to
become widely adopted. In short, it’s hard to tell which, if any,
specific companies will ultimately profit from the rise of 5G. But 5G is coming. Standards have been agreed upon by government
agencies, and many are actively pushing for implementation sooner rather than later. Telecom carriers are laying the necessary
infrastructure. Device makers are designing 5G capable devices. And somewhere, a wide-eyed entrepreneur is
sitting in a garage inventing the next big thing. Investors hoping to capitalize on a new technology
like 5G should learn from the lessons of the past, and start their investing due diligence

Paul Whisler

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