5G stocks have an increasingly bad rap, as initial trends (reminiscent of blockchain enthusiasm, then artificial intelligence exuberance) pointed to every 5G company as a millionaire-maker. But, just as we saw with blockchain and are starting to see with AI, only a handful of companies are truly innovative and worth buying for the long-term: the rest are riding the tailcoats of others’ initiatives. But, now that the dust has settled over the wider industry, those top 5G stocks are coming to the surface — at a discount.
Rapid advancements drive the surge in innovation within 5G stocks. We use more data than ever, necessitating expanded coverage from terrestrial and space-based telecom providers. Additionally, the rise of edge computing is increasing the demand for ultra-fast data connections, and semiconductor innovations are enhancing our connectivity as the Internet of Things concept continues to evolve.
Despite the market often pricing them as volatile meme stocks, quality 5G stocks are far from speculative. And these 5G stocks are as high-quality as they come.
Skyworks Solutions (SWKS)
Skyworks Solutions (NASDAQ:SWKS) hits two major “hard tech” investment criteria: the semiconductor company is also a strong 5G and wireless data stock in its own right. This company supplies critical semiconductors across the wireless ecosystem, from cell towers to user phones, with a key role in expanding 5G connectivity globally through its components vital for band switching and other 5G functionalities.
While Skyworks benefits from a vast market potential, its heavy reliance on Apple (NASDAQ:AAPL), which constituted more than 65% of its 2023 revenue, introduces risk. Still, the fast-growing and expanding 5G market, projected to grow at 32% annually until 2030, provides a buffer against client concentration risks.
Institutional investors hold 84% of Skyworks’ shares, underscoring the stock’s smart money backing. Beyond basic passive indexing institutions (Vanguard et al.), Skyworks’ roster includes brand-name hedge and active fund managers. This broad institutional support indicates a strong belief in the unique value of this 5G-meets-semiconductor stock within the niche tech sector.
Fabrinet (FN)
Like Skyworks, Fabrinet (NYSE:FN) stands out among 5G stocks by sitting at the intersection of multiple emerging tech trends, including artificial intelligence. Fabrinet specializes in manufacturing optical cables essential for high-speed data transmission across various hardware platforms, capable of speeds exceeding 800GB per second. These cables are hot topics for 5G data transfer, advancing machine learning and AI technologies. This particular product line contributes $500 million to Fabrinet’s revenue, highlighting its importance to the company’s financial health.
Fabrinet is a crucial supplier to Nvidia (NASDAQ:NVDA), the semiconductor giant, alongside many other big-name 5G and semiconductor companies. While pure-play 5G competitors vie for leadership in the sector, Fabrinet secures its profitability by providing essential components required in the industry, ensuring its success irrespective of which company leads the market.
With a valuation of just 2.9x sales and 25x earnings, Fabrinet seems undervalued, considering its pivotal role across multiple domains. As the global economic landscape improves and regions continue 5G integration, Fabrinet could be one of the game’s biggest winners.
AT&T (T)
On the stabler side of the spectrum, legacy telecom stock AT&T (NYSE:T) is also emerging as a top 5G stock contender based on its longstanding market penetration and strength, relative stability and dividend and emerging forward-looking 5G initiatives.
One such growth initiative for AT&T is its sizable stake in and partnership with AST SpaceMobile’s (NASDAQ:ASTS) ambitious project to provide satellite-based cellular services, aiming for a commercial launch in 2024. While this venture may not transform AT&T overnight, it underscores its commitment to exploring new technologies and maintaining competitiveness in a saturated market.
In its late January earnings report, AT&T disclosed some missed targets but highlighted robust growth areas, such as a nearly 4% increase in wireless service revenue year-over-year. This growth demonstrates AT&T’s ability to navigate economic challenges and expand its customer base through strategic pricing. AT&T added 526,000 postpaid phone subscribers, exceeding the forecasted 487,500, reaffirming its strong market position as national and global customers make the 5G transition.
Despite some views of AT&T as a yield trap, the company maintains a solid 6.7% dividend yield supported by a sustainable 56% payout ratio, continuing to make it an attractive option for dividend-focused investors.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.