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Motley Fool Issues Rare “All In” Buy Alert

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Strategy Analytics estimates that 5G smartphone shipments could hit 624 million units this year from just 269 million in 2020. There were almost 136 million 5G smartphones shipped in the first quarter of 2021, according to the research firm, and sales are likely to get stronger as the year progresses.

Even better, the 5G smartphone juggernaut will keep rolling for a long time as annual shipments are expected to hit 1.5 billion units by 2025, as per third-party estimates. As such, now is a good time to load up on key beneficiaries of the growth in 5G smartphones.

Micron Technology (MU -4.27% ) and Broadcom (AVGO -0.41% ) are two stocks that should be on your radar to take advantage of the 5G revolution. Let's see why.

Micron Technology makes dynamic random access memory (DRAM) and NAND flash memory chips that go into a wide range of devices such as personal computers, servers, graphics cards, and smartphones. The 5G era has supercharged Micron's mobile business unit, as smartphones based on the latest wireless technology standard are equipped with more memory.

For instance, Counterpoint Research estimates that mobile devices will consume thrice the NAND flash in 2025 compared to 2021 levels. Not surprisingly, Micron is enjoying a mix of stronger shipment volumes and higher revenue per smartphone in the 5G era. That's evident from the terrific growth of its mobile revenue last quarter.

Micron's mobile business unit registered 31% year-over-year growth to $2 billion in the third quarter of fiscal 2021, accounting for 27% of its top line. Micron management thanked healthy demand for 5G handsets for this impressive growth and indicated that the segment's robust momentum is here to stay on the company's latest earnings call:

Mobile unit sales are expected to show healthy growth this year, with some variability across geographies, driven by an expected doubling of 5G units in CY21 to more than 500 million units. These 5G phones also feature rich content demanding significantly higher DRAM and NAND. We are also encouraged to see bold OEM innovation in new devices like gaming smartphones featuring 18GB of DRAM.

Micron reportedly controls a quarter of the DRAM market and just over 11% of the NAND flash market, which means that it is in a nice position to benefit from the secular growth of the 5G smartphone memory market. And with the stock trading at just 7.6 times forward earnings compared to last year's average forward price-to-earnings (P/E) multiple of 20 times, Micron is a solid bet for investors looking to add a 5G stock to their portfolio.

Broadcom supplies a wide portfolio of connectivity chips to smartphone makers, including radio-frequency (RF) front-end modules, Bluetooth, Wi-Fi, and navigation modules. More importantly, the chipmaker has an illustrious base of mobile customers that includes the likes of Apple (AAPL -1.92% ) and Samsung, two companies that are winning big in the 5G mobile market.

Samsung, for instance, is one of the fastest-growing 5G smartphone vendors globally, with shipments growing 79% quarter over quarter in Q1 2021, as per Strategy Analytics. The company shipped 17 million 5G handsets during the quarter and had a market share of 12.5%. Apple, on the other hand, was the top seller of 5G smartphones during the quarter with 40.4 million shipments and 29.8% market share.

These relationships point toward a bright future for Broadcom's wireless business that recorded impressive growth last quarter. The wireless segment recorded 48% year-over-year growth in Q2 thanks to higher content and strong demand that led to better-than-expected shipments. Broadcom anticipates wireless revenue to grow more than 30% year over year this quarter, but it won't be surprising to see the business pick up the pace as we approach the end of the year.

Apple, which is one of Broadcom's key customers, has already started production of this year's iPhone models, according to noted analyst Ming-Chi Kuo (via MacRumors). It is also worth noting that Apple is expected to manufacture between 90 million and 100 million units of the new iPhone models this year, according to Dan Ives of Wedbush Securities. Apple reportedly built an initial 80 million units of the iPhone 12 models last year, indicating that key supply chain partners such as Broadcom could witness stronger sales growth in 2021.

In January 2020, Broadcom struck an agreement with Apple to sell $15 billion worth of wireless components over a three-and-a-half-year period. The iPhone maker accounted for 15% of Broadcom's total revenue last fiscal year, so Apple's soaring fortunes in the 5G market bode well for the chipmaker.

Finally, Broadcom's valuation makes it an enticing bet, especially considering that it is clocking solid double-digit percentage growth that looks sustainable. Its revenue increased 15% year over year in Q2 to $6.6 billion, while adjusted net income shot up 28% to $2.98 billion.

The stock is trading at 43 times trailing earnings, which is a huge discount over its five-year average earnings multiple of 113. A forward P/E ratio of just 15.7 points toward bottom-line growth, making Broadcom an attractive growth stock to buy right now given its impressive pace of growth and bright prospects.

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