2 Top 5G Stocks to Buy in May | The Motley Fool

The 5G smartphone market has been growing at a terrific pace as more consumers adopt the latest wireless standard, which is why it wasn’t surprising to see a greater number of 5G devices being shipped in January 2022 compared to 4G smartphones.

Market research firm Counterpoint Research estimates that the penetration of 5G smartphones hit 51% in January, surpassing the penetration rate of their 4G counterparts for the first time. This also means that there is still a lot of room for growth in the adoption of 5G smartphones. A third-party estimate predicts that global 5G smartphone penetration could hit 69% in 2023.

Not surprisingly, 5G smartphone shipments are expected to keep growing at an impressive pace in the coming years. Investors can take advantage of this hot trend with the help of Apple (AAPL 0.47%) and Qualcomm (QCOM -0.75%) — two companies that are winning big in the 5G smartphone era.

Let’s look at the reasons why these are two top 5G stocks that you may want to buy right away.

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1. Apple

Apple was the leading seller of 5G smartphones in 2021, with the company reportedly cornering 31% share of this market last year as per Strategy Analytics. The 5G smartphone shipment statistics for the first quarter of 2022 aren’t available yet, but it looks like Apple has continued its domination of this fast-growing market.

That’s because Apple was the only smartphone vendor that increased its shipments in the first quarter, while its competitors and the overall market went south. Market research firm Canalys points out that global smartphone shipments were down 11% in Q1 to 311 million units. Apple, however, bucked the trend and logged an 8% increase in shipments to 56.5 million units. As a result, the tech giant’s share of the smartphone market increased to 18% last quarter from 15% in the prior-year period.

Apple’s major competitors — Samsung, Xiaomi, Oppo, and Vivo — registered a drop in sales even though all of them offer 5G smartphones at more aggressive price points. For instance, the 2022 iPhone SE, launched in March this year, is Apple’s cheapest 5G-enabled device. It’s priced at $429 in the U.S. and 419 pounds in the U.K. Samsung, on the other hand, offers the Galaxy A13 5G for $250 in the U.S. and 179 pounds in the U.K.

This clearly indicates that Apple is enjoying solid pricing power in the 5G smartphone market. Counterpoint Research estimates that Apple’s iPhone average selling price (ASP) had increased 14% in 2021 to $825.

Now Apple is taking steps to ensure that it remains the leader in 5G smartphones. The company’s budget-friendly iPhone SE, which is now equipped with 5G, could substantially expand its installed base by bringing new users into its ecosystem. Of course, such a device could lower its ASP, but it could also drive significant volume growth for Apple, since a budget-friendly 5G iPhone is expected to help it attract nearly 1.4 billion users of low- to mid-range Android devices.

All of this indicates that Apple’s robust share of the 5G smartphone market is here to stay. Ericsson estimates that global 5G smartphone subscriptions could hit 3.35 billion in 2026, compared to 569 million last year, so Apple could see a sharp spike in iPhone shipments considering the steps it is taking to hold on to its position in this market.

That’s why investors looking to buy a 5G stock right now should consider putting their money on Apple, as it is trading at 25 times trailing earnings — a discount to the Nasdaq-100‘s multiple of 30.

2. Qualcomm

We have already seen how demand for 5G smartphones could explode in the long run, and Qualcomm is a great way to play this secular growth given its relationships with the major smartphone OEMs (original equipment manufacturers) across the globe.

From Apple to Samsung to Xiaomi to Vivo and Oppo, all of them are Qualcomm customers. Of course, Apple’s move to develop in-house modems for its iPhones appears to be a headwind, as the iPhone maker was a 10%-plus customer for Qualcomm last fiscal year. But the latter’s focus on diversifying its revenue streams could help it reduce its dependence on Apple to a low-single-digit percentage of its chipset business by fiscal 2024.

Even if we exclude Apple, four of the top five smartphone OEMs are Qualcomm customers. The likes of Samsung, Xiaomi, Vivo, and Oppo together accounted for 54% of the global smartphone market in the first quarter of 2022, and they’re increasingly relying on Qualcomm chips in the 5G era.

Samsung, for instance, is using Qualcomm’s processors in 75% of its Galaxy S22 smartphone units. The Korean giant tapped Qualcomm for 40% of Galaxy S21 units last year. Similarly, Qualcomm pointed out on the company’s April earnings conference call that its Snapdragon processor is “the mobile technology platform of choice for premium and high-tier Android” manufacturers.

As such, Qualcomm is a pick-and-shovel play on the 5G smartphone market. More importantly, Qualcomm has been gaining share from its rivals in the smartphone processor space. Counterpoint Research says that Qualcomm’s share of the global smartphone application processor market increased to 30% at the end of 2021, compared to 23% in the prior-year period.

Additionally, Qualcomm has more than a 20% share of the radio frequency front-end (RFFE) module market following the gains it scored over rivals last year. This market should open another solid growth opportunity for Qualcomm, as sales of RFFE modules are expected to clock 11.3% annual growth through 2026, according to Mordor Intelligence.

Investors shouldn’t miss the fact that the transition to 5G smartphones is already driving solid growth at Qualcomm, driven by an increase in both volumes and content per smartphone. The company’s fiscal second-quarter 2022 revenue increased 41% year over year to $11.2 billion, while adjusted earnings were up 69% to $3.21 per share.

Analysts expect Qualcomm to clock mid-teens annual earnings growth for the next five years, but it wouldn’t be surprising to see it grow at a faster pace given the prospects of the 5G smartphone market. That’s why it would be a good idea to buy the stock right now, as it is trading at just 14 times last year’s earnings, a substantial discount to the S&P 500‘s multiple of 24.