Network Communication Concept Stocks Investment Guide: Seize Opportunities in the 5G Era

Bright Outlook for the Network Communication Industry, Policy Support Drives Growth

Network communication concept stocks have become a focus of investment in recent years. According to the latest market data, since 2023, network communication concept stocks have surged over 35%, far outperforming the broader market. Behind this trend is the global government’s emphasis on broadband infrastructure— the US allocated $42 billion to build a nationwide high-speed network, and the EU’s seven major industrial countries plan to invest $600 billion, aiming to achieve household internet speeds of 1Gbps by 2030.

According to Dell’Oro data, the global communication equipment market size approached $102 billion in 2022, marking five consecutive years of growth. The market is expected to exceed $120 billion by 2025, with considerable growth potential.

What Are Network Communication Concept Stocks?

The network communication (networks and internet) industry covers all hardware devices and technology related to internet connectivity. Common network communication devices include routers, set-top boxes, switches, and more. Network communication concept stocks refer to stocks of listed companies engaged in network communication business.

The industry chain is widely distributed:

• Upstream: Communication terminal component suppliers (microprocessors, network ICs, passive components, memory, etc.)
• Midstream: Network equipment manufacturers (printed circuit boards, cables, etc.)
• Downstream: Terminal application product suppliers (wireless communication devices, wired communication devices, optical communication equipment, telecom services, etc.)

With the booming development of 5G and the Internet of Things, the network communication industry is entering a new growth cycle.

Recommended U.S. Network Communication Giants

U.S. network communication stocks have shown varied performance in recent years, but the long-term trend is upward. Here are five leading U.S. stocks worth watching:

Cisco (CSCO)

Cisco is a top global network equipment manufacturer, mainly producing switches, routers, and related hardware/software. In Q2 2023, revenue reached $15.2 billion, up 16% year-over-year, with earnings exceeding expectations. Benefiting from increased AI orders, investors are optimistic about its AI development potential. As of August 2023, Cisco has gained 17% since the start of the year, with a 5-year cumulative increase of 21%.

Arista Networks (ANET)

Arista is a professional network equipment supplier, mainly manufacturing multi-layer switches and software platforms. In Q2 2023, revenue was $1.46 billion, with EPS of $1.58, both surpassing market expectations. About 50% of its revenue comes from Microsoft and Meta, directly benefiting from the AI boom. Year-to-date, it has surged over 50%, demonstrating strong momentum.

T-Mobile (TMUS)

T-Mobile is the third-largest telecom operator in the U.S., providing communication services and mobile sales. In Q2, it added 760,000 phone users, surpassing competitors AT&T and Verizon. Although its stock price has not increased since the beginning of the year (down 2%), its fundamentals remain solid, with a long-term outlook, and a 5-year total increase of 108%.

Broadcom (AVGO)

Broadcom is a global leader in communication chips, dominating fields like switching and routing chips, Wi-Fi chips, and more. According to Linley data, in 2021, its Ethernet switch chip market share reached 70%. Benefiting from the AI boom, its revenue in Q2 and Q3 2023 exceeded expectations consecutively. Its stock price has surged over 55% since the start of the year, with a 5-year increase of 319%.

Qualcomm (QCOM)

Qualcomm is a leading mobile communication chip designer, supplying chips for smartphones, tablets, and mobile devices. Although its performance this year has been lackluster and its stock has experienced volatility, the company remains a leader in 5G. Collaborating with Meta on mobile AI applications, it is expected to rebound with the AI wave. Since the beginning of the year, it has increased by 58%.

Overview of U.S. Network Communication Giants’ Performance

Leading Taiwanese Network Communication Stocks

In 2023, Taiwan’s communication network index rose over 35%, and Taiwanese network communication stocks performed well. Here are five Taiwanese stocks worth attention:

Chunghwa Telecom (2412)

Taiwan’s largest telecom company, covering fixed-line, mobile, broadband, and internet services. In the first half of 2023, EPS was NT$2.52, reaching a 6-year high. The company has paid dividends for 26 consecutive years, with a dividend of NT$4.7 in June 2023, earning it the nickname “fixed deposit stock” among retail investors. Since the start of the year, it has increased by 4%, with a dividend yield of 3.93%.

Delta Electronics (2308)

Taiwan’s leading power supply manufacturer, involved in power supplies, automation, and communication infrastructure. It is a multi-concept stock related to network communication, AI, and electric vehicles. In Q2 2023, revenue exceeded NT$100 billion, up 11.7%; net profit was NT$15.056 billion, up 10%. Management expects stable growth in Q3. Since the beginning of the year, it has risen 24%, with a dividend yield of 3.1%.

FarEasTone (4904)

One of Taiwan’s “Big Three” telecom operators, offering phone, wireless communication, parts trading, and import/export services. In Q2 2023, revenue was NT$21.7 billion, up 4.7%; net profit NT$2.8 billion, up 19.7%, boosted by 5G user upgrades. It has paid dividends for 24 consecutive years, with a July 2023 dividend of NT$3.25. Since the start of the year, it has increased by 7%, with a dividend yield of 4.43%.

Advantech (2345)

Major network switch manufacturer, with about 70% of revenue from switch products, serving many international clients. In the first half of 2023, EPS reached NT$7.67, a record high. As the shipment ratio of 400G switches continues to rise, the market expects sustained high performance. It has surged 93% since the start of the year, with a dividend yield of 2.32%.

Quectel (6285)

Satellite communication giant, mainly engaged in network communication, automotive/modules, and antenna solutions. The Americas account for 66%, making it a direct beneficiary of U.S. network infrastructure themes. In Q2 2023, revenue was NT$26.63 billion, up 31.98%, a record high. Driven by demand from European and American telecom operators, revenue is expected to further grow. Since the start of the year, it has increased 60%, with a dividend yield of 5.07%.

Overview of Taiwanese Network Communication Stocks’ Performance

Opportunities and Risks in Investing in Network Communication Concept Stocks

Investment Advantages

Strong Policy Support Major governments worldwide have launched broadband infrastructure policies, providing long-term growth momentum for the network communication industry.

Stable Operations and High Dividends Traditional network communication giants are less affected by economic cycles, with stable revenue and generous dividend payouts, suitable for long-term investors.

Multiple Concepts with Growth Potential Many network communication stocks feature multiple hot topics such as 5G and AI, offering opportunities for multiple benefits.

Main Risks

Limited Growth Potential Most developed countries’ networks are saturated; although there is demand for 5G/6G upgrades, construction cycles are long, limiting growth margins.

Intense Competition Many players compete fiercely, often lowering prices to win orders, which erodes profit margins.

Investment Strategy Recommendations

1. Prioritize Multi-Concept Stocks Some network communication stocks are also 5G and AI stocks. These multi-concept stocks tend to outperform single-concept stocks and are worth considering first.

2. Diversify and Long-Term Planning Investing in a single stock carries higher risk. Consider ETFs or mutual funds related to network communication to diversify risk and pursue long-term growth.

3. Exercise Caution with Short-Term Trading For short-term trading, strictly use stop-loss, take-profit, and trailing stop tools to manage risks within acceptable ranges.

Conclusion

Network communication concept stocks refer to listed companies engaged in internet communication business. Leading Taiwanese stocks include Chunghwa Telecom, Delta Electronics, FarEasTone, Advantech, and Quectel; U.S. giants include Cisco, Arista Networks, Broadcom, and others. With the booming development of 5G and IoT, coupled with strong global government support, the outlook for the network communication industry is optimistic. Investors can appropriately allocate their portfolios based on risk tolerance to seize industry development opportunities.