What are the networking concept stocks? An analysis of the 2023 Taiwan and US stock investment landscape

Understanding the Core Value of Network Communication Concept Stocks

The global policy-driven expansion of the network communication industry has been rapid. In 2023 alone, network communication concept stocks have performed remarkably, with gains exceeding 35%. But what exactly are network communication concept stocks? Why are they worth paying attention to?

Network communication concept stocks refer to listed companies engaged in network communication-related businesses, covering hardware equipment manufacturing, communication chips design, and telecommunications services. Common devices include routers, switches, wireless communication equipment, and more. According to Dell’Oro data, the global communication equipment market size reached nearly $102 billion in 2022, maintaining growth for five consecutive years, and is expected to surpass $120 billion by 2025.

The industry chain extends from upstream component suppliers (microprocessors, network ICs, printed circuit boards, etc.) to downstream end applications (wireless communication devices, telecom services, fiber optic communication equipment, etc.), forming a complete ecosystem.

Network Communication Leaders in the US Market

US network communication stocks have shown differentiated performance in recent years, but several leading companies still demonstrate strong momentum.

Cisco(CSCO) is a globally renowned network equipment manufacturer, mainly selling network software and hardware. Its Q2 2023 financial report shows revenue of $15.2 billion, a 16% increase year-over-year, surpassing market expectations. Benefiting from increased AI-related orders, its stock price has risen over 16% since the beginning of the year.

Arista Networks(ANET) focuses on multi-layer network switches and software development. Its Q2 revenue was $1.46 billion, with an EPS of $1.58, both exceeding expectations. Over half of its revenue comes from tech giants, benefiting from the AI boom, with a surge of over 50% so far this year.

T-Mobile(TMUS) is the third-largest telecom operator in the US. In Q2, it added 760,000 phone users, outperforming AT&T and Verizon. Although recent stock prices have fluctuated, its fundamentals remain solid.

Broadcom(AVGO) leads in communication chips, with a market share of up to 70% for Ethernet switch chips. Benefiting from the AI wave, its revenue in Q2 and Q3 2023 is expected to surpass expectations, with stock price soaring over 55% since the start of the year.

Qualcomm(QCOM) enjoys a reputation in mobile communication, mainly designing chips for smartphones and tablets. Although its performance this year has not been ideal, it maintains a leadership position in 5G and collaborates with Meta to advance mobile AI applications, with potential for rebound.

Major Participants in Taiwan’s Network Communication Landscape

Taiwan’s Communication Network Index has risen over 35% so far in 2023, far outperforming the broader market, with many companies becoming industry focal points.

Chunghwa Telecom(2412) is Taiwan’s largest telecom company, offering fixed-line, mobile, and broadband internet services. In the first half of the year, EPS reached NT$2.52, a six-year high, and has paid dividends for 26 consecutive years, attracting long-term investors.

Delta Electronics(2308) is both a leading power supply manufacturer and a multi-concept stock. Its main businesses include power components, automation, and communication infrastructure. Its Q2 revenue exceeded NT$100 billion, up 11.7% year-over-year, with a net profit of NT$15.056 billion, up 10%. Its stock price has increased by 20% since the beginning of the year.

FarEasTone(4904) is one of Taiwan’s “Big Three” telecom companies. In Q2, revenue was NT$21.7 billion, up 4.7%, with a net profit of NT$2.8 billion, up 19.7%. It has paid dividends for 24 consecutive years, with a stock price increase of over 7% since the start of the year.

Chunghwa Telecom(2345) is a major network switch manufacturer, with 70% of its business from switch products, serving many international leading clients. In H1, EPS reached a record NT$7.67, and as the shipment ratio of 400G switches increases, its stock price has surged 93% so far this year.

Qisda(6285) engages in satellite communication, providing network communication and antenna solutions. The US market accounts for 66%, making it a direct beneficiary of US broadband infrastructure. In Q2, revenue was NT$26.63 billion, up 31.98%, with a stock price increase of over 60% since the beginning of the year.

Key Factors for Investing in Network Communication Concept Stocks

Advantages:

Global government policies provide a solid foundation. The Biden administration in the US has invested $42 billion in broadband infrastructure, and seven EU countries plan to invest $600 billion, aiming for 1G home internet speeds by 2030. Policy support ensures long-term industry development.

Traditional network communication companies are less affected by economic cycles, with stable revenue and profits, and strong dividend-paying capacity. Many network communication concept stocks also have multiple concept attributes, such as being both 5G concept stocks or AI concept stocks, allowing them to benefit doubly when related industries surge.

Risks to Watch For:

Growth potential of the network communication industry is limited. Most developed countries’ network infrastructure is saturated, and although 5G and 6G upgrades are needed, the pace of construction is relatively slow.

Industry competition is fierce. Companies often face price-cutting pressures to win orders, challenging profit margins.

Investment Strategy Recommendations

Choosing stocks with multiple concepts can reduce single risk. The combination of 5G and AI concepts often results in better stock performance.

Consider diversifying risk through ETFs or mutual funds. Tools like Global Communications ETF(00861) and iShares US Telecom ETF(IYZ) are suitable for long-term deployment.

For investors with higher risk tolerance, keep an eye on individual stocks with higher volatility, but be sure to establish comprehensive risk management mechanisms and set reasonable stop-loss points.

Conclusion

Network communication concept stocks encompass the complete ecological chain from chip manufacturing to telecom services. Leading Taiwanese companies like Chunghwa Telecom and Chunghwa Telecom, as well as US leaders like Cisco and Broadcom, all demonstrate solid fundamentals. With the booming development of 5G and IoT industries, coupled with strong global government policy support, network communication concept stocks remain a worthwhile allocation for investors.