What Do Investors Need to Know About 5G?

5G is the latest-generation wireless network technology. Providing faster speeds and greater capacity than the previous 4G network, 5G networks started coming online in the United States in 2018.

Along with the new wireless technology comes the potential for transformative technologies for individual consumers, businesses, governments, and more. With significant global interest in 5G and the last several years seeing telecommunications companies and countries vying to create the largest 5G networks, investors may wonder how to capitalize on this development.

Many individual companies and larger industries stand to benefit from 5G technology, providing investors with ample opportunities to profit as well. However, there are also some potential downsides to 5G that investors should be aware of, such as security concerns.

What Is 5G?

5G is best distinguished from previous wireless network technology by its speed. It operates on a larger portion of the radio spectrum to allow wireless devices to transmit signals more efficiently. The technology also allows for faster information-processing times for devices.

As of early 2022, all major carriers in the U.S. have 5G deployments covering 200 million or more people. New top-of-the-line smartphones released by major manufacturers in 2021 were all equipped with 5G capacity.

As with other types of wireless technology, there are also multiple versions of 5G technology, including millimeter wave, which offers tremendously high speeds over short distances, and low band, which provides slower speeds and wider range.

How Is 5G Transformational?

Besides offering significantly higher speeds than prior wireless technologies, 5G may open up the possibility of new technologies. The technology may have applications across many industries, including in self-driving cars, government infrastructure, the test and measurement industry, and various others. Businesses utilizing high-resolution streaming video, industrial automation, artificial intelligence, machine learning, virtual reality, and related technologies all stand to benefit.

How to Invest in 5G

One immediate way to invest in 5G is to target telecommunications companies and technology companies that are likely to make popular 5G-capable devices. Major wireless networks like Verizon Communications Inc. (VZ) or T-Mobile US Inc. (TMUS) have worked tirelessly in recent years to set up large 5G networks in a bid to entice and retain customers seeking higher speeds and the latest technology. However, there are also many ways to invest in 5G beyond internet companies.

Companies building popular 5G-enabled devices—as well as companies that provide key components of those devices, such as chips or 3D inspection systems—are another possible access point. Cloud computing companies, providers of network access infrastructure, hardware, and services, and fiber-optic technology companies all stand to benefit from the new technology. Farther afield, companies developing self-driving car technology, virtual reality systems, robotics, and similar technologies could also benefit, albeit less directly.

Investors have many vehicles to use to access the investment paths listed above. Individual equities are always a possibility. Investors searching for greater diversity may wish to focus on mutual funds, exchange-traded funds (ETFs), or real estate investment trusts (REITs) targeting this area. Within these options, investors have the choice of broader vehicles, such as the Technology Select Sector SPDR ETF (XLK), which targets all tech stocks in the broader S&P 500. Investors can also target an industry more directly linked to 5G. The Pacer Benchmark Data and Infrastructure Real Estate SCTR ETF (SRVR) is an example: It is an ETF targeting data center and cellphone tower REITs.

What Are Potential Risks to Investing in 5G?

While 5G has the potential to revolutionize technology in many ways, it also carries risks for investors. For instance, the U.S. Federal Aviation Administration (FAA) has cautioned that there are potential safety issues due to the possibility of interference related to 5G services utilizing a portion of the radio spectrum close to that used by airplanes. Airlines and wireless network providers have strong incentives to resolve any possible safety concerns related to 5G technology, but it is an ongoing and developing situation that may have deleterious effects for investors.

Additionally, as power grids, factories, oil refineries, hospitals, and other infrastructure systems utilize 5G technology in place of wired setups, there are potential vulnerabilities to cyberattacks by hackers that may not have been a concern previously.

Finally, due to the need to completely overhaul infrastructure to facilitate 5G, it is likely going to take a while before this technology is fully available. Telecommunications industry trade group GSMA has estimated that half of mobile connections will be 5G by 2025, with greater adoption taking more time beyond that.

The Bottom Line

5G wireless technology is the fastest wireless ever produced. While it is transformative and presents exciting possibilities for investors, it does carry risks and likely will not be fully implemented for years to come. Still, a multitude of companies across many industries—ranging from internet service providers to automotive manufacturers to firms focused on artificial intelligence—stand to benefit from this technology.