Tech companies continue to dominate the markets.
Just this morning, the Nasdaq Composite opened significantly higher, while the consumer staple-heavy Dow opened the week below its previous close.
This is a sight we’re getting pretty used to over the last year.
But tech stocks are not all the same.
EV developers, for instance, saw their best year ever led by the likes of Tesla Inc. (NASDAQ: TSLA) and newcomer QuantumScape Corp. (NYSE: QS).
But what’s been lost in this technological exuberance is that for many market-disrupting technologies, there’s a ripple effect.
Often, the best long-term gains aren’t made by the companies developing the new technologies. Instead, it’s the companies that support them and sell to those innovators.
That’s right. 2020 was the year of exciting new trends. But 2021 should be a year to remember for the pick-and-shovel plays.
After all, it wasn’t the prospectors that made a fortune off the California gold rush. It was the people who sold them the tools that made out like bandits.
And one tech trend is ripe for a huge year: 5G and the companies that make it work.
I’ve discussed how absolutely game-changing the implementation of 5G is going to be.
Faster connections, lower latency and a boom in cloud computing are just some of what to expect.
I’ve also talked about which companies are set to benefit as the major players like AT&T and T-Mobile build out their 5G networks.
But there’s another side to what this next-gen communications technology means.
As speeds increase, the sheer amount of data will increase.
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Our addiction to data is nothing new. But with more of it at our fingertips at the speed of light, we’ll just start using more of it.
Much of this will be on the cloud. That’s one of 5G’s strongest advancements. Speeds will increase to the point where more than just data can be stored on clouds. The actual computing is done there.
And that means data centers will become more important than ever.
The huge real estate companies that house America’s data might not sound too exciting. And in last year’s rally in nearly everything else, it appears investors got that memo.
Data centers saw just 8% share price growth compared to Nasdaq’s 44% performance.
But these companies, at least a particular few, are absolutely crucial as 5G begins penetrating more markets.
Right now, 5G has only reached 4% of North American markets. That’s supposed to quadruple to 17% this year and grow to 37% next.
That quick rollout and immediate strain on data centers hasn’t been reflected in their share prices.
Equinix Inc. (NASDAQ: EQIX), for instance, is the largest data center real estate investment trust (REIT) in the country… by far. Yet, even with its aggressive adoption of the new switches and routers to accommodate the 5G rollout, it had just a pretty ok year:
As you can see, 20% is pretty good for a 12-month period. But it returned less than half what the rest of the Nasdaq brought investors.
Others like CoreSite Realty Corp. (NYSE: COR) and CyrusOne Inc. (NASDAQ: CONE) have also been getting out in front of the changes needed for 5G.
These data centers may not be as exciting as the rest of the 5G market, let alone the other disruption technologies we’ve seen hitting it big on Wall Street.
But they are crucial. And set to see demand start to spike this year. You can bet that it will only continue for years afterward as 5G allows for even more cloud computing.
This is a chance to get in before investors realize that boring can be even more profitable than exciting.
To your prosperity and health,
Joshua M. Belanger