The godfather of value investing is betting big on 5G. Berkshire Hathaway’s most recent filing revealed that it bought 146.7 million shares of telecom giant Verizon Communications in the Q4 2020. The stake in Verizon is worth around US$7.9 billion today. This is in addition to the previous quarter, in which Berkshire invested in T-Mobile, scooping up 2.4million shares with an estimated value of $276mn at the end of Q3 2020 (today worth around $311mn).
Now, his investment house holds OVER $8billion of the two telecoms companies — coupled with his portfolio’s biggest holding — Apple (over $100bn). Apple could potentially be on the verge of its next super cycle (its last was Q4 2014 when it reinvigorated its iPhone line-up) given several positive tailwinds expected to drive a positive outlook, with the main one being 5G. The iPhone 12 is the first from Apple to connect to new 5G wireless networks offering die-hard fans faster download speeds, along with the potential for a new generation of apps that take advantage of this network. While many people have shifted from the two year phone upgrade, 5G may be a technological driver that encourages people to upgrade their old phone.
While both T-Mobile and Verizon have been heavily investing in the 5G technology and infrastructure lately, in the U.S. market at least both are potentially recession-resistant, subscription-based business models, which could offer a defensive play on the 5G theme over the next decade. Following its acquisition of Sprint, T-Mobile now has the largest 5G network in America, delivering comparatively low-priced service plans combined with the largest, fastest and most available 5G network. Its merger with Sprint increased its market share significantly unleashing considerable scale benefits across its network and marketing infrastructure. Both T-Mobile and Sprint have spectrum portfolios that are particularly complementary, which gives it first mover advantage in the nationwide 5G roll-out. With the Sprint acquisition, T-Mobile could potentially offer both the lowest prices and fastest network in the States for the foreseeable future. As CEO Mike Sievert put it recently:
Key takeaways
- Buffett seems all in on 5G – adding a substantial investment in Verizon in Q4 2020, to his investment in T-Mobile in Q3 2020 and Berkshire’s largest holding – Apple.
- With the Sprint acquisition, T-Mobile could potentially offer both the lowest prices and fastest network in the US for the foreseeable future.
- Buffett’s disciplined approach has seen Berkshire Hathaway hold over $130bn in cash reserves - this allocation the 5G play speaks volumes.
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