Network Communication Stocks Investment Guide: 2024 Leading Company Selection Strategies and Market Outlook Analysis

Core Concepts and Industry Chain of Networking Stocks

Networking stocks refer to listed companies involved in internet communication businesses. The internet communication industry is closely related to hardware devices and technologies connected to the internet. Common networking equipment includes core devices such as routers, set-top boxes, and more.

The industry chain structure is complete: upstream consists of various communication terminal component suppliers, such as microprocessors, network ICs, etc.; downstream includes terminal application product providers, including wireless communication devices and telecommunications services. Specifically:

Upstream covers plastic/metal casings, passive and active components, other parts, printed circuit boards, network ICs, microprocessors, and memory. Downstream includes wireless communication devices, wired communication devices, fiber optic communication equipment, cables, telecom services, and network equipment.

With the booming development of 5G and the Internet of Things industry, the internet communication industry is entering a rapid growth period. According to market research data, in 2022, the global communication equipment market size reached nearly $102 billion, achieving five consecutive years of growth. It is expected that by 2025, the global communication equipment market will surpass $120 billion, with ample growth momentum.

Investment Opportunities Driven by Policies

Major economies worldwide regard broadband infrastructure as a strategic priority. The US is promoting a $42 billion broadband network construction plan aiming to achieve widespread high-speed broadband by 2030. The seven major industrial countries in the EU plan to invest $600 billion, expecting household internet speeds to reach 1G by 2030.

These policy supports provide a solid foundation for the growth of networking stocks, reducing industry cycle volatility risks.

Analysis of Leading US Networking Companies

US networking stocks have shown mixed performance in recent years, with overall volatility. Here are five leading companies worth noting:

Cisco (CSCO) — Global Leader in Network Equipment

As a top global network equipment manufacturer, Cisco mainly sells network software and hardware, including switches, routers, and other core devices. In Q2 2023, Cisco reported revenue of $15.2 billion, up 16% year-over-year, with profits exceeding market expectations.

The continuous growth in AI orders has brought new growth drivers for Cisco. Investors are optimistic about its AI development potential. Since the beginning of the year, Cisco’s stock has risen over 16%, with recent steady performance.

Arista Networks (ANET) — Beneficiary of Cloud Network Infrastructure

Arista specializes in designing and selling multi-layer network switches and related software. In Q2 2023, revenue reached $1.46 billion, with EPS of $1.58, both surpassing expectations.

Nearly half of its revenue comes from tech giants like Microsoft and Meta. Driven by the AI boom, sales are expected to continue growing. Since the start of the year, the stock has surged over 50%.

T-Mobile (TMUS) — Growth Driver in the US Telecom Market

As the third-largest telecom operator in the US, T-Mobile provides communication services and mobile phone sales. In Q2, it added 760,000 new phone users, surpassing market expectations and leading competitors like AT&T and Verizon.

Entering 2023, T-Mobile’s stock entered a correction phase, but its fundamentals remain solid, with rebound potential ahead.

Broadcom (AVGO) — Absolute Leader in Communication Chips Market

Broadcom dominates in areas such as switching and routing chips, Wi-Fi chips, and more. Market data shows that in 2021, Broadcom held a 70% market share in Ethernet switch chips.

Benefiting from the booming AI industry, Broadcom’s revenue has hit new highs. Both Q2 2023 revenue and Q3 outlook exceeded market expectations, with the stock rising over 55% since the start of the year.

Qualcomm (QCOM) — Opportunities in 5G and AI Integration

Qualcomm is renowned in mobile communications, designing and manufacturing chips for smartphones, tablets, and mobile devices. Despite some performance pressures this year, and its stock in a correction, Qualcomm maintains a leading position in 5G.

Notably, Qualcomm is collaborating with Meta to apply generative AI technology in smartphones in 2024, which could ride the wave of AI development, offering potential for stock rebound.

Summary Table of US Networking Leaders

In-Depth Analysis of Taiwanese Networking Leaders

Since 2023, Taiwan’s communication network index has risen over 35%, far outperforming the broader market. Key Taiwanese networking stocks include:

Chunghwa Telecom (2412) — Stable Provider in Taiwan Telecom Industry

As Taiwan’s largest telecom company, Chunghwa Telecom covers fixed-line, mobile, broadband access, and internet services. In the first half of 2023, EPS was NT$2.52, reaching a six-year high, with NT$1.28 in Q2.

Chunghwa Telecom has paid dividends for 26 consecutive years, favored by retail investors for its stability, often called “fixed deposit stocks.” As of June 2023, it paid NT$4.7 per share in cash dividends, providing steady income.

Delta Electronics (2308) — Multi-Concept Growth Stock

Delta is Taiwan’s leading power supply manufacturer, involved in power supplies, components, automation, and communication infrastructure. It also has identities as a networking stock, AI concept stock, and electric vehicle concept stock.

In Q2 2023, revenue exceeded NT$100 billion, up 11.7% year-over-year; net profit after tax was NT$15.056 billion, up 10%. The CEO expects stable growth in Q3. Strong fundamentals have supported its stock rising over 20% since the start of the year.

FarEasTone (4904) — One of Taiwan’s Big Three Telecoms

FarEasTone mainly engages in telephone services, wireless communication equipment, parts installation, wholesale, import/export, and related businesses. In Q2 2023, revenue was NT$21.7 billion, up 4.7%; net profit was NT$2.8 billion, up 19.7%, boosted by 5G user upgrades.

FarEasTone has paid dividends for 24 consecutive years, with a NT$3.25 per share dividend in July 2023. Since the start of the year, its stock has risen over 7%.

ZTE (2345) — Rapid Growth of Major Network Switch Manufacturer

ZTE is a major network switch manufacturer, with about 70% of its business from switch products, serving many international clients. In H1, EPS reached NT$7.67, a record high.

Benefiting from excellent performance, ZTE’s stock surged 93% since the beginning of the year. As 400G switch shipments increase, the market expects its performance to remain high.

Quectel (6285) — Direct Beneficiary of Satellite Communications in the Americas

Quectel is a satellite communication giant, involved in network communication, automotive modules, and antenna solutions. The Americas account for 66% of its business, directly benefiting from telecom infrastructure investments in Europe and America.

In Q2, revenue was NT$26.63 billion, up 31.98%, a record high. Since the start of the year, the stock has risen over 60%, with strong growth driven by telecom demand in Europe and America.

Summary Table of Taiwanese Networking Leaders

Advantages and Risks of Investing in Networking Stocks

Investment Advantages

Complete Policy Support System — Broadband infrastructure is vital for national development; major governments worldwide strongly support it, providing policy dividends for the industry.

Higher Operational Stability — Traditional networking giants are less affected by economic cycles, with stable revenue and ample dividend distribution, suitable for long-term holding.

Multi-Concept Synergy Effect — Many networking stocks carry multiple concepts like 5G and AI simultaneously, often performing better when related technologies take off.

Main Risks

Limited Growth Potential — Compared to industries with huge growth imagination like AI, networking stocks have relatively limited growth. Many countries’ networks are saturated, with slow upgrade speeds.

Intense Competition — Industry entry barriers are relatively low, leading to fierce competition and price wars that often sacrifice profit margins.

Stock Selection and Investment Strategies for Networking Stocks

Stock Selection Principles

Prioritize Multi-Concept Stocks — Networking stocks with multiple concepts like 5G and AI tend to outperform single-concept stocks and are worth prioritizing.

Focus on Stable Fundamentals — Choose companies with steady revenue growth and maintained profit margins, avoiding risks from short-term performance fluctuations.

Pay Attention to Market Position — Prefer companies with dominant positions in niche markets, such as Broadcom’s leadership in chip markets.

Investment Approaches

ETF and Fund Investment — For risk-averse investors, related ETFs or mutual funds can effectively diversify risk, such as Global Future Communications ETF (00861), US Telecom ETF (IYZ), etc.

Individual Stock Investment — Suitable for investors with some research ability, selecting high-quality companies through in-depth fundamental analysis.

Volatility Trading Strategies — For short-term traders, focus on high-volatility networking stocks for trading opportunities, but establish comprehensive risk management systems.

Summary

Networking stocks represent the future development direction of communication infrastructure, benefiting from policy support and the growth of emerging technologies like 5G and AI. Leading US companies include Cisco, Arista, Broadcom, etc., while Taiwan’s top players include Chunghwa Telecom, ZTE, Delta, and others.

With continuous increases in global broadband infrastructure investment and the booming development of 5G and IoT industries, networking stocks hold long-term investment value. Investors should consider their risk tolerance, choose appropriate investment methods and targets, and strategically allocate to grasp industry development opportunities.