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Bank of America Merrill Lynch says the shift to fifth-generation wireless technology, or 5G, will offer investors a number of compelling investment opportunities.
The firm predicts 5G phone shipments will rise from 17 million this year to 130 million in 2020 and 327 million in 2021.
“RF [radio frequency chip] supply chain companies are looking interesting given their new growth opportunities for 5G phones,” analyst Simon Woo wrote in an Aug. 28 note.
The shift to 5G is tremendously important to the semiconductor and telecom industries. Analysts expect 5G to deliver speeds 10 to 40 times faster than current 4G LTE networks. Its lower latency promises to enable new applications from augmented reality and automated factories to self-driving and cloud gaming.
Here are two Buy-rated stocks from Bank of America Merrill Lynch to play the 5G trend:
Taiwan Semiconductor Manufacturing
“In light of the latest macro headwinds, we prefer stocks with thematic drivers that can potentially benefit from the upcoming 5G era and global supply chain shifts, including TSMC,” he wrote.
The analyst cited the semiconductor foundry’s large size and advanced chip-making technology leadership. The firm has $47 ADR price target for Taiwan Semiconductor (TSM), 10% above a recent close of $42.63.
Broadcom
“We expect Broadcom (AVGO) to be a key beneficiary of 5G smartphone adoption…in addition to supplying specialized processors for 5G front and back haul,” he wrote.
The analyst said Broadcom will supply chips to both Apple and Samsung for their 5G smartphones. He has a $345 price target for the stock, suggesting a potential gain of 22% for Broadcom shares.
Write to Tae Kim at tae.kim@barrons.com
