Dan Chung: The Power of 5G
June 26​​, 2019​​​
After much media hype and many months of anticipation, the fifth generation of cellular networks, or “5G,” is arriving with Verizon Communications having started the rollout of its U.S. smartphone-compatible 5G service in Ap​ril while AT&T, Inc. is scheduled to launch its 5G service later this year. Wireless carriers across the globe, especially in Asia, have already launched or will soon launch 5G networks. We believe 5G will revolutionize how we use mobile devices, a vital component of nearly every business model; 5G is poised to overhaul the technology sector and drive economic growth. Let’s take a closer look at how it is changing the world.

Each cellular network generation ushered in new capabilities and, as a result, new uses for mobile devices. At first, 2G was a big leap in communications because it enabled text messaging with cell phones. With the arrival of 3G, mobile web browsing became common, again because of increased data transmission capabilities. With the emergence of 4G, video streaming, online shopping and data-intensive and real-time services via software applications (in consumer lingo, “apps”) emerged. Today, U.S. adults spend an average of six hours per day on digital media and over half of that time involves mobile devices. 5G promises to be yet another quantum increase in the speed of mobile computing and communications. With speeds that will allow a user to download an entire movie in seconds​, new mobile business models will likely change the way people live and work and the way business and industry run.

5G networks will enable a host of potential applications that will become transformed through real-time data, analysis and feedback mechanisms concerning vast amounts of data. The development of our transportation ecosystem to include either fully autonomous vehicles or higher levels of driver assistance for both navigation and collision avoidance will need 5G network speeds as a cornerstone. Improved network speeds will also allow for the possibility of autonomous drone delivery by allowing drones to share real-time data with other drones and operators to avoid collisions and maximize efficiency. Amazon.com, Inc. is already trialing Prime Air​, which could potentially deliver packages to customers in 30 minutes or fewer using autonomous drones. The use of drones in other applications is widely anticipated. For example, in search and rescue or emergency response missions, drones could locate and assess people and areas in need of medical and humanitarian assistance, as well as assist with allocating and directing relief workers and resources to the right locations. These examples could lead to new businesses that innovators are planning based on the speed and capacity of 5G networks.

5G may also play an important role in health care. A surgeon​ recently directed an operation at Hospital Clinic Barcelona via live video, which was made possible by the network’s rapid real-time connection. Even more astonishing, a surgeon in China​ recently harnessed 5G technology to perform the world’s first remote operation using robotic arms.

In addition to enabling groundbreaking technological advancements, 5G could deliver increased corporate earnings and positively impact the U.S. economy. In 2016, the U.S. generated approximately $125 billion in revenue due to its leadership in 4G technology. Moreover, 4G is estimated to have increased U.S. GDP by approximately $100 billion. 5G is positioned to produce a similar impact, with some experts predicting that the entire 5G value chain’s benefits will top $3.5 trillion globally, support 22 million jobs and contribute $500 billion to U.S. gross domestic product. Investors should note that 5G is also estimated to create $275 billion​ in new investment.

So what types of companies and opportunities do we believe investors should seek as 5G becomes commonplace? For one, we expect accelerating growth in companies that provide products required to roll out and implement 5G. They include network and network equipment companies, semiconductor and semiconductor equipment companies, and wireless tower and bandwidth infrastructure providers. We believe investors should focus on companies whose products or services are designed to benefit from the capabilities that 5G offers and have the strategies and teams to adapt and evolve with this technology transition as it touches industries and consumers across the U.S. and the globe. Our team is eager to observe the innovation and ingenuity that this exciting transitional period will spark.​​ ​​​

Fred Alger & Company, Incorporated is the parent company of Fred Alger Management, Inc. The views expressed are the views of Fred Alger Management, Inc. as of June 2019. These views are subject to change at any time and should not be interpreted as a guarantee of the future performance of the markets, any security or any strategies managed by Fred Alger Management, Inc. These views should not be considered a recommendation to purchase or sell securities. Individual securities or industries/sectors mentioned, if any, should be considered in the context of an overall portfolio and therefore reference to them should not be construed as a recommendation or offer to purchase or sell securities.

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Verizon Communications, AT&T, Inc. and Amazon.com, Inc. represented 0.01%, 0.01% and 6.68% of Alger assets under management as of March 31, 2019.

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