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The pros and cons of investing in 5G companies

By:  Nic Gardner | 19th July 2021

World-changing tech doesn’t come along every day, but when it does, it presents an opportunity for those who get in early. Electricity, radio, telephones and the internet changed the world. And with a forecast compound annual growth rate (CAGR) of 46.2% from 2021 to 2028, 5G companies have the potential to do the same for you.

What is 5G?

When Steve Jobs presented the first iPhone in 1997, it opened up a whole new world of tech for users – but also an opportunity for investors.

5G stands for ‘fifth generation’. It’s the latest iteration of mobile technology. Compared to 3G and 4G, it offers higher speed, capacity and reliability, and lower power consumption and latency. This won’t just help with mobile browsing, but also the internet of things (IoT), virtual and augmented reality (VR/AR), smart cars and more!

Pros of investing in 5G companies

Like every investment, there are pros and cons to investing in 5G companies. The pros of 5G are easy to see – the opportunities for fast, reliable low-power wireless technology aren’t restricted to a single industry.

5G can transform companies across industries, from reliable disaster communication and telemedicine to gaming, industrial VR/AR, equipment monitoring and optimisation, and more. As it expands, 5G can replace fibre broadband, bringing more people online. But does that make 5G companies a good area for investment?

Well, the world’s appetite for fast, reliable connectivity shows no signs of decreasing. If good investments are those with growth potential, 5G definitely has that. Forecasts predict three billion 5G subscriptions by 2025.

Cons of investing in 5G companies

Every silver lining has a cloud, and 5G is no different. Governments regulate the radio spectrum closely, and a share of the 5G spectrum can be expensive. Additionally, the 5G rollout is very uneven and requires more towers or masts. Businesses will pass these costs to the end users, increasing subscription prices. Only time will tell whether high prices will impact market growth.

In 2020, six companies held the majority of essential 5G patents, and only large companies are likely to be able to invest in 5G infrastructure.

However, as the rollout progresses, smaller companies will develop businesses based on the existing 5G infrastructure. At this point, the market giants may not be agile enough to stay ahead of the smaller companies. This could result in a more volatile market with more potential for investor losses as well as gains.

Getting started with 5G investments

If you want to invest in 5G companies, look at different levels of the market, from chip manufacturers to users, depending on your risk tolerance. A small number of manufacturers will supply the growing 5G hardware market, while the number of companies building on 5G will explode.

With any investment, past performance is not an indication of future results. The challenge with new technologies like 5G is that there’s not even any past performance to go on.

For less risk-tolerant investors, a growing number of 5G exchange-traded funds (ETFs) and index funds offer market exposure with some diversification. As with any ETF or index fund, you can find them in your normal share dealing account.

If you’re a new investor, check out our guide to investing before you dive in. Once you’re ready to get started, compare share dealing accounts to find the best account for you.

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