Who sells the basics? That’s the first question I answer when evaluating an investment trend.
In markets, those who sell the basics get rich.
James Marshall was the first guy to pull a gold nugget out of the mud during the 1848 gold rush. James literally struck gold. And yet, he left California broke.
You know who got fabulously wealthy, though? Those who sold the basic tools needed to find and extract the gold.
But here’s the catch.
Investing in “who sells the basics” requires you to buy stocks that will never make the front page of The Wall Street Journal.
For example, Google (GOOG) is famous for turning the search engine into a $120-billion-a-year business. Along the way, it handed investors 1,900% gains.
But without keyboards, mice, and screens, the search engine wouldn’t have taken off.
Logitech (LOGI) is a leading maker of this “basic” equipment. Over the past five years, its stock has more than doubled Google’s performance:
But while the search disruption is over, there are other three technologies that are set to disrupt the market in the next decade. Each with its own equivalent of Google (GOOG) and Logitech (LOGI).
One of them is…
The 5G Revolution
I talked about the lightning-fast Fifth Generation Wireless Technology (5G) recently.
I also made an in-depth analysis of this technology in my Great Disruptors report. My research shows that 5G could be one of the biggest disruptions of the next decade.
In short, 5G is the new wireless network all our phones and computers will soon run on.
It will be superfast—with speeds up to 20 gigabytes per second. That’s 1,000x faster than what we have today.
It’s important to understand that 5G isn’t a small improvement. It’s a huge leap that will enable world-changing disruptions like self-driving cars and remote surgery.
Launching 5G will require the biggest overhaul of America’s wireless networks ever. According to the GSM Association—which represents 800 of the world’s largest mobile operators—it’ll cost roughly half a trillion dollars to build out the necessary infrastructure!
Millions Will Flow into the Basics that Enable 5G
Superfast speeds are a key benefit of 5G.
But just as important is the huge improvement in the amount of data that can run through a 5G network.
Think about a cell network like a highway. The more lanes it has, the more traffic it can handle.
5G is going to widen the wireless “highway” by around 100x from what we have today. This is crucial because new technologies will require far more data than current 4G networks can handle.
For example, according to Intel (INTC), a single self-driving car uses roughly 4,000 GB a day. That’s like downloading 1,000 HD movies a day—per car!
Secret Weapon for Getting America 5G Ready
To expand 5G’s “highway,” network providers like Sprint (S) and AT&T (T) are using something called Multiple Input, Multiple Output—or MIMO.
Sprint Chief Technology Officer John Saw calls it “our secret weapon to getting 5G built.”
Each antenna acts like a new highway lane, allowing the network to handle more traffic. Using MIMO, Sprint increased 5G’s capacity by 300%.
Demand for MIMO is expected to explode by 1,500% over the next eight years, according to ResearchandMarkets.com.
Computer Chip Maker Xilinx (XLNX) Builds the “Brain” of These MIMO Boxes
Computer chips are the “brains” of electronic devices like smartphones and computers.
Xilinx is the leading maker of a type of chip called field-programmable gate array (FPGA). Think of these chips as powerful blank canvases that can be used for many different tasks.
For example, Amazon (AMZN) and Google use Xilinx’s chips in their giant data centers. The US Air Force uses them for its drones.
The key advantage of Xilinx chips is they are adjustable. You can change them to perform a brand-new task, or optimize an existing one.
Most other chips are built for a specific purpose and aren’t adjustable.
This gives Xilinx a huge competitive advantage for 5G.
Network providers like Sprint, AT&T, and Verizon (VZ) are figuring out how 5G works as they build it. For the most part, industry standards haven’t been set. Things are constantly changing… which requires the equipment to change along with it.
Several wireless carriers in America and South Korea are already using Xilinx’s chips in their 5G rollouts.
Using Xilinx chips, one carrier was able to slash the energy use of its MIMO boxes in half. It also reduced the number of chips inside each from 24 to 4.
Xilinx Is Already Profiting from the 5G Buildout
It charges roughly $40,000 for each chip inside a MIMO box.
Last quarter, sales from this business line jumped 33% to $260 million—thanks mostly to the early 5G rollouts in America and South Korea I mentioned.
Xilinx is a profitable, well-run business. Over the past year, its profits soared 24% to an all-time high.
And not only are its margins at record highs—they’re 3x better than the industry average.
Disruptive companies must hit a delicate balance between growth and profitability. To achieve record highs in both at the same time is impressive.
Xilinx is trading at $87 today. My research suggests the stock could hit $130 in the next 12 months as it starts collecting bigger checks from the 5G buildout.
I’ve said it before and I’ll say it again: “The Great Upgrade” to 5G is one of the three greatest booms in American history.
Best of all, it’s just getting started. We’re in the initial infrastructure buildout phase. Now’s the time to get in early on companies that “build the basics” to bring 5G to all of America.
Stephen McBride is the editor of the RiskHedge Report, a popular and rapidly growing advisory dedicated to helping investors understand and profit from disruption.
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