A Special Note from Michael: Before we get started with today’s chat, I want to take a moment to talk to you about the fastest growing industry in America; cannabis. Since 2015, it’s almost tripled in value, and with the political pressure for full legalization getting stronger all the time, it’s still got plenty of upside ahead. But, with each growing industry come new problems that need solving to clear the path for that growth. One tiny startup is helping the cannabis industry deal with a massive pest problem, and looking at growth potential of more than 10,000% in less than a year. Click here to see exactly what I mean.
Starting this year, nearly every smartphone, tablet and laptop will need chips that comply with the new ultrafast cellular platform, 5G wireless.
And I’m happy to report that, right on schedule we have a new catalyst. And it’s a big one.
As a group, US wireless carriers just spent a record $80.9 billion for access to a critical 5G wavelength. These wavelengths that were up for grabs in this auction are the exact right kind for setting up 5G service
To make it clear just how much these companies are willing to spend for a chance to be a part of this buildout, it’s worth pointing out that the previous record for this kind of auction was only a bit more than half of this sale.
Not only that, but the amount of money spent on this spectrum is as much as four times the amount that was projected to be spent on it last summer.
These companies are so eager to spend big bucks for access to this spectrum because they foresee the massive profits to be made in 5G wireless.
And one way that 5G will create these profits will be by serving as a huge catalyst for semiconductor sales this year.
The Wireless Spectrum Rush
Now then, the Federal Communications Commission (FCC) just closed Phase One of its latest spectrum auction, for the so-called C-Band.
See, to make sure wireless signals from different providers and technologies don’t interfere with one another, parts of the electromagnetic spectrum are divvied up.
That’s why the FCC auctions these bands off to individual wireless carriers.
In Phase One of this recent C-Band auction, the carriers bid a total of $80.9 billion for bits of the spectrum. That far exceeded both previous estimates of $26 billion to $51 billion as well as the previous record of $44.9 billion.
The number is so high because the 3.7-3.98 GHz C-Band is right in the sweet spot of both reaching far while also providing great speeds. That makes it perfect for 5G.
First, however, the C-Band will have to be cleared by its current users – satellite companies. They’ve agreed to give it up in exchange for $9.7 billion in “relocation costs” and “incentive payments,” leaving $71.2 billion.
The satellite companies will leave a large chunk of the C-Band by December 5, 2021, and the rest by December 5, 2023.
In other words, this year is shaping up to be a big catalyst for 5G technology expected to have a total economic value of $12.3 trillion.
That’s why I’m so excited about Qualcomm Inc. (QCOM), the San Diego-based chip designer for modems, smartphones, wireless routers, laptops, tablets, cars, and more.
The firm’s chips deal with wireless communication, audio and video processing, wireless charging, and much more.
The firm is best known for making the central Snapdragon processors and graphics chips for most high-end Android phones, as well as providing 5G modems for Apple Inc.’s (AAPL) iPhone 12 line.
In the smartphone processor market alone, the company has a 50% market share. It boasts 130,000 patents. This means basically any company designing, fabricating, and selling wireless devices has to license technology from Qualcomm.
It’s a powerhouse, so 5G is the next natural field for them to dominate.
And since I last recommended the stock last May 29, it’s up 104%. That is nearly five times the S&P 500’s 20% return over the same period.
But don’t worry. There’s still plenty of upside ahead.
As you may have heard, the 5G rollout is a gamechanger not only for smartphones, but for a slate of other cutting-edge technologies.
By enabling speeds of up to 20 times that of the existing 4G/LTE technology, while at the same time cutting latency in half or more, 5G is opening up a number of technologies to be used anywhere.
Fast and reliable Internet connections suddenly become possible, providing real competition to the cable companies without having to put down copper wire or fiber to every household.
Earlier I cited the FCC’s C-Band auction as a major catalyst for the 5G sector. But it turns Qualcomm has two catalysts of its own.
First, in mid-January Qualcomm announced that it’s acquiring Nuvia, a chip startup company created by ex-Apple engineers.
For $1.4 billion, Qualcomm is getting a firm laser-focused on central processor performance and power efficiency. Those are key to the growing 5G market.
Second, the Qualcomm recently announced a leadership change. CEO Steve Mollenkopf is stepping down in June, to be replaced by Cristiano Amon, the company’s current president.
More importantly, Amon has been leading Qualcomm’s push into 5G technology. He is responsible for Qualcomm becoming an Apple supplier.
He also gets credit for growing the firm’s market share in China, and launching new business lines in less traditional areas such as autonomous cars.
A likable and warm guy, Amon has been the company’s public face for some time and is well-liked by investors and analysts. And with over two decades at Qualcomm, he knows the company inside out.
Combine that with him targeting 5G and beyond, and the set up for Qualcomm could hardly be better.
On the financial front, the firm’s earnings growth has been weak as the company has been investing heavily in growth. But in the most recent quarter, per-share were profits up 86%.
If we just project growth to be only one-third that rate, or 28.6%, we get earnings doubling in right at 2.5 years.
And while the stock won’t appreciate at the same rate as 5G broadband, it can definitely grow your wealth at high speeds.
Cheers and good investing,
Michael A. Robinson