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Morgan Stanley created a basket of the best stocks to own for the automotive tech revolution.
The list includes tower providers, chipmakers, infrastructure builders, and more that will be required for the data-hungry vehicles.
Back when smartphones were first introduced, mobile data was less than one-tenth of carrier revenue.
Now that smartphones have all but taken over the world, Morgan Stanley is betting that an even bigger disruption will come from the introduction of data-hungry autonomous vehicles. The bank estimates the connected-car revolution could net cell phone carriers more than $1 trillion annually.
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But getting there won't be easy - it will take significant investment by telecom services companies, tower providers, and other communications infrastructure providers - to shore up the grid in order for data-hungry cars to take the road.
"The list is populated irrespective of specific 12-month recommendations and so includes some Underweight-rated names, in addition to M Equal-weight and Overweight-rated names," the bank said. "The Morgan Stanley "Connected Autos 25" is meant to provide investors a way into this emerging theme."
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We've rounded up the US-traded stocks from the bank's list to put together the 21 best names to own as the connected-car revolution advances:
Morgan Stanley's take: "Market leader (subs, revenues) and largest capex budget across Latin America. Best positioned to lead on 5G, notably in Mexican cities."
Morgan Stanley's take: "An AV-enabled 5G network significantly increases tower demand, indirectly benefiting CT/CU as their stakes in China Tower represent 20%-25% of their respective market caps."
Morgan Stanley's take: Like China Telecom, "An AV-enabled 5G network significantly increases tower demand, indirectly benefiting CU as its stake in China Tower represent 25% of its market cap."
Morgan Stanley's take: "KT’s early 5G roll-out in Korea, coupled with its superior fiber network, positions it well to be a preferred vendor from an AV perspective, in which case we could see significant upside to its RoIC profile."
Morgan Stanley's take: "NTT, via its market-leading mobile arm NTT DoCoMo, is expected to be a 5G leader (starting at the 2020 Tokyo Olympics). NTT’s nationwide fiber network can be expected to facilitate the smooth launch of 5G wireless technology. DoCoMo may also partner with the Japanese autos industry."
Morgan Stanley's take: "Orange has a history of being a technology leader (TV over DSL, 2001 smart-phones, etc.), and may seek to play a leading role in AVs in large French cities, probably as of 2022. Orange France has the largest wireless capex budget, will have an extensive fibre footprint (FTTH, fibre-to-the-base station) and may also partner with the blue-chip French automotive industry."
Morgan Stanley's take: "The conglomerate's Telco subsidiary - Reliance Jio (India's aggressive new entrant) has the ambition of becoming a leading digital player. Jio has made heavy investments in network and fibre."
Morgan Stanley's take: "Spain's wireless market leader is well-positioned to accommodate AV on its networks via high capital spend, nationwide fibre and its Digital focus."
Morgan Stanley's take: "Verizon Wireless, as mobile market leader, has the largest wireless capex budget in the US, and is likely to lead on 5G (as it did on 4G in 2010/11). Verizon Connect offers fleet management and connected vehicle solutions globally. Verizon acquired Hughes Telematics, Fleetmatics and Telogis in recent years."
Morgan Stanley's take: "Leading European tower provider (present in Spain, Italy, France, NL, Switzerland, UK), investing in small cells and mobile edge computing. Will seek to diversify revenues to new use cases such as 5G."
Morgan Stanley's take: "As one of the leading pure play fiber providers in the US and Europe, Zayo is well positioned to support the tremendous bandwidth requirements of AV and 5G implementation."
Morgan Stanley's take: "Cisco’s strength is connecting more devices onto a network. Through their acquisition of Jasper Technologies, they have a software company that eases one of the largest pain points for carriers / auto manufacturers, helping manage the increased number of connections (e.g. setup, network management, billing). Cisco is interested in making sure they have the most visibility into the network, for automation, security and analytics purposes – with autos being one of the next potential sources of data."
Morgan Stanley's take: "5G will require more fibre backhaul and small cells. CommScope, as a provider of antenna and small cell technology, is likely to benefit with more connection points. Additionally, as a fiber provider, they benefit from the expansion of backhaul in the network."
Morgan Stanley's take: "Similar to CommScope, Corning supplies fiber for the additional backhaul and data centers needed to enable AV. Additionally, with their acquisition of SpiderCloud, they have a play on the growth of small cells, as well."
Morgan Stanley's take: "Global leader in design software for autos – integration between physical design and design/test of electronics and software will become increasingly important."
Morgan Stanley's take: "Qualcomm develops radio technology, making them a key 5G enabler. By selling modem chips and licensing their technology into autos, they generate another revenue stream outside of mobile phones today. Additionally, Qualcomm has developments beyond radio technology, working on innovations around continuous localization, pointing to the fact that some of the LIDAR and GPS systems being thought of today for AV are prohibitively expensive."
