We believe that the most value creation is not with the carriers – notwithstanding what their public pronouncements may imply. Value resides with the transformative technologies that are creating a new generation of semiconductors that power 5G; a new cloud computing architecture that’s moving to the edge to optimize the benefits of faster speeds, latency, capacity; software to filter and process vast quantities of data in real-time; and, enabling technologies such as streaming, smart homes, smart factories, remote healthcare, autonomous vehicles, AR/VR - and applications that have yet-to-be-created.
Our investment process is underpinned by fundamental research, conducted by analysts on the ground in the U.S. and Asia – the two leading regions in the 5G race. Our investment approach is both “top-down” to identify the above-mentioned sectors and “bottom-up”, to identify companies that are attractively valued and well-positioned. Technologies leveraging the next generation of connectivity are fast-evolving, and the perception of investors ever-changing (and often misunderstood), such that actively rotating between the sectors (and therefore companies) is a meaningful source of returns.
How to capture the 5G opportunities? First, think globally – 4G was largely the U.S. focused; 5G adoption will be global from the outset. Second, think top-down – allocate dynamically to “5G sectors” described below, as the technology evolves. Third, think bottom-up – invest in fundamentally superior companies within each “5G sector”.
5G is not a light-switch; it is an evolution. We categorize the impact of 5G technology in four main categories/sectors: (1) New Semiconductors, (2) Cloud & Edge Computing, (3) SaaS & (4) Enabling Technology. We invest in all of the “sectors,” with allocations adjusted in-line with the development of the 5G cycle.
Semis are the nucleus of the 5G ecosystem. Every existing device and every facet of the 5G cycle has to be upgraded with new semiconductor technology to run faster and smarter, all while being more energy-efficient. 5G will require a massive expansion of semiconductor content.
Cloud giants push into Edge Computing. Edge computing and 5G are interlinked technologies as both are poised to significantly improve the performance of applications (faster speed) and enable huge amounts of data to be processed in real-time (low latency). Applications running on edge locations demand lower latency and reduced bandwidth.
What does software have to do with 5G? 5G will result in a massive amount of new data. The ability to continuously filter and process this new data, in real-time, will be critical, particularly for A.I. and machine learning applications. A new generation of database platforms, big data analytics, and agile software development tools are emerging to help individuals and businesses build digital experiences in the context of 5G/edge computing.
Enabling technologies. Eventually, once all of the 5G building blocks are in place, the big winners will be the enabling technologies (think of Instagram and Netflix in the 4G cycle), giving rise to a wave of new 5G business applications, devices, and services: smart homes, smart factories, remote healthcare, autonomous vehicles, AR/VR - and applications that have yet-to-be-created.
Esoterica's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For full disclosures, click here.