Editor’s Note: Welcome back to Jeff Brown’s prediction series. Over the next several days, Jeff will share his biggest predictions for the new year. Today, Jeff will discuss the state of 5G and the new technologies springing from this next generation of wireless technology. Read on…

Van Bryan (VB): Jeff, I’d like to ask you about the state of 5G. You’ve been covering this topic for years.

Jeff Brown (JB): I have. It’s been one of the central investing themes for us for years. As some of my readers know, I previously worked as an executive in the wireless technology space. And each generation of wireless technology is rolled out in very predictable phases.

VB: To catch readers up, could you remind us what those are?

JB: There’s three phases to a rollout of a technology like a new wireless standard. The first is the infrastructure phase.

For 5G, a large part of this infrastructure means new 5G base stations. These look very different from the large, 4G towers we’re used to. They’re smaller. And they’re usually located closer to the ground. 

This is particularly true for base stations operating in the highest frequency bands. High frequency bands also mean higher performance, and a much denser network. We’ll see them attached to traffic signal poles or light posts.

A 5G Base Station

Source: John Haislet/Bryan-College Station Eagle

We entered this infrastructure phase back in the 2016-2017 timeframe. And it’s still going to this day. Once you have enough architecture in place, the second phase is devices.

That’s when we see new smartphones launched that can take advantage of this wireless technology. And we’re well into phase two. Every major smartphone manufacturer has now released a model that can take advantage of 5G. By now, most new models incorporate 5G technology. It’s becoming difficult to find new models that don’t have 5G capabilities.

And finally comes services. That’s when we have new applications and services that take advantage of the new wireless networks. A perfect example of this during the 4G era was Uber.

3G networks were very limited in performance. Phone calls, text messages, and limited amounts of e-mail or images were possible; but the performance would be considered intolerable for anyone using 4G or 5G today. 

And the corresponding 3G devices were also very basic. We didn’t have the powerful computing devices that became available in the 4G era. The combination of smart phone technology with added bandwidth and performance of 4G networks are what made applications like Uber possible.

And I would point out that these phases tend to “bleed” into each other. It’s not as if one stops and another begins. The 5G infrastructure buildout is still ongoing and will be for years as the less population-dense parts of the network coverage get built out. And new 5G-enabled devices will be coming to market as well.

VB: And when you look back at 2022, what stood out to you in the 5G space?

JB: One big thing that happened was that there were two major spectrum auctions in the mid-bands. These are the “C-bands” in the industry. We can think of this as the “Goldilocks Zone” in terms of the optimum frequencies to rollout 5G wireless networks.

The high-band spectrum that enables the ultra-wideband services on networks like Verizon and AT&T is what enables the 1 Gbps performance that 5G is capable of. I’ve experienced it myself. It’s fantastic. The performance can be fifty or maybe even one hundred times faster than some 4G speeds.

But the downside is that 5G base stations operating at these higher frequencies have limited range at that level of performance. That’s why so many 5G base stations must be clustered so tightly together. And for that reason, we tend to see these deployed in dense, urban areas for the network to make economic sense.

But the C-bands offer a “sweet spot.” We might not receive the same 1 Gbps speeds, but they’re still markedly better than 4G. And the benefit is that they have greater range. That means the economics now make sense to rollout 5G in less populated areas.

If I were to summarize it, I’d say that the real 5G “arrived” this year for a majority of the population compared to where we were in 2020 and 2021. 

We’re now able to experience 5G performance that is notably better than what we are used to with 4G in most areas. This is a global phenomenon.

This is important because it means that 5G wireless networks won’t be something we experience occasionally. They’ll be a part of our daily lives. And that’s when we get to the point where it becomes hard to live without.

Would any of us really want to go back to the 3G era when it was hard to use e-mail on our phones and nearly impossible to stream video? It would probably be unthinkable. That’s the stage we’re getting to with 5G.

VB: Any other standouts from this year?

JB: One other thing that was important was that 2022 was the first full year when 5G-enabled devices outsold 4G-enabled devices on a percentage basis.

So, it’s along the same lines of this technology becoming ubiquitous. 5G devices are no longer niche products. They’re the dominant smartphones on the market today.

And bringing the two together—the ubiquity of 5G coverage and the prevalence of 5G devices—means that we’re well into the “services” phase of this rollout.

VB: And what does that look like?

JB: Very few appreciate the impact 4G wireless networks had on some of the most popular technology products today. I mentioned Uber. But Waze is another perfect example. Instagram is another. Without 4G networks, these products would either not exist or have limited functionality and thus have far less adoption.

When we look at 5G technology, one of the next “blockbuster” applications that I expect to come will be with augmented reality.

VB: Could you give readers a refresher on what augmented reality is?

JB: As the name suggests, augmented reality—or “AR”—overlays information and graphics on top of our view of the real world. A sophisticated pair of AR glasses might display a story from the Wall Street Journal in front of our eyes. The text will appear to be “floating” right in front of us.

We’ve already seen some interesting applications of augmented reality for smartphones in recent years. Probably the best example is Pokémon Go. It lets players “catch” these creatures out in the real world. And the characters appear through our smartphones as if they were right in front of us.

Pokémon Go is an Early Example of Augmented Reality

Source: Pokémon Go

And before we dismiss this as just a “kid’s game,” it’s worth noting that this was a massive success. The game has generated more than $1 billion in revenue every year since 2020. As investors, this deserves our attention.

VB: My understanding is that you view AR’s “big moment” to be when we have augmented reality glasses, correct?

JB: That’s right. Applications like Pokémon Go are a great early example of this technology. But AR is still being limited to the confines of a smartphone screen. It’s kind of like looking through a porthole. We get just a very narrow view.

A functional pair of augmented reality glasses are different. They become our natural field of vision, not just a small part of it. It’s much more immersive. I believe that many people will quickly prefer to “live” in an augmented world than the one that we live in today.

I view augmented reality as the next evolution in human/computer interface. We first had desktop computers. Then came the mobile revolution. What’s happening now is this next step towards AR eyewear.

VB: You had a prediction along these lines. You predicted that there would be at least three major product launches for AR glasses. Did that happen?

JB: We saw several. The one worth mentioning first was Magic Leap. That’s a private company that has arguably the best AR lens technology on the market. Magic Leap came out with their Magic Leap 2. It’s designed for enterprise applications.

The Magic Leap 2

Source: Magic Leap

Another interesting product was from a company called Nreal. It launched a pair of AR glasses in September that can pair with our smartphones and essentially project video in front of our field of view.

And while it’s technically not augmented reality, there was an interesting partnership between Facebook and Ray Ban. The glasses tether with our smartphones and allows us to take pictures and record video straight from the glasses. I had a chance to “test drive” a pair of these glasses. 

Jeff Wearing Facebook’s “Smart Glasses”

And what I would point out is that these are still early examples of the technology. They will continue to improve next year.

VB: Which companies do you see entering the AR space?

JB: For starters? A handful of the largest, most powerful technology and consumer electronics companies in the world.

The Facebook product was very telling. I’m virtually certain that the company will follow up with a pair of true augmented reality glasses.

Microsoft has let off the gas a bit in recent years, but they’re still in the market with their HoloLens. Google already has its Google Glass product that it’s been iterating on. And then of course there’s Apple and Samsung.

VB: You see Apple entering this space?

JB: Absolutely. I’ve long predicted that AR eyewear will be Apple’s next major product category. Apple understands the value of AR as a computing platform upon which applications can be built and monetized.

The Apple Watch was a great precursor to a far more functional computing device like AR glasses.

We have to remember that augmented reality will let us do everything we can now do with our smartphones, but with the convenience of not having to manipulate a small device like a smartphone.

We could call, text, browse our email, stream videos; all of it. And again, the benefit of this technology is that we don’t need to squint at tiny screens and hammer at little icons with our fingers. It will be a much more immersive experience.

I’ve said it before, but an advanced pair of augmented reality glasses will literally replace the modern smartphone.

And that will be a problem for a company like Apple—which still sees roughly half its revenue from iPhone sales—if they don’t adapt. They could literally go the way of BlackBerry, which is why they are investing so much in an AR breakthrough product.

Apple won’t be left behind. And I’ll make a prediction for this.

In 2023, Apple will unveil its first commercial AR eyewear. It will start off with a high-end product and announce a clear roadmap to a more affordable mass market product. If I had to speculate, I’d expect there will be a dedicated product launch in the second quarter of next year with commercial availability to follow.

VB: And I’ll ask what readers are probably wondering. What should investors do with this information? Invest in Apple?

JB: That’s the obvious answer, but it’s not my preferred strategy. After all, Apple is a $2.2 trillion company. It’s going to be very hard for Apple to grow quickly when it already is so massive.

As with some of the other trends we’ve been discussing, my preferred investment strategy is to invest in the suppliers. These are the companies providing the necessary components for the augmented reality glasses.

One large-cap company I like in this space is Corning (GLW). Corning is mostly known for their fiber optic line of product. But what many don’t know is that Corning also provides the glass that makes up every iPhone screen.

Corning also happens to have an augmented reality lens division. They call it “Augmented Reality Solutions.”

I’m speculating a little bit, but I would say that Corning is likely supplying the lens technology for a future Apple product. There’s already an established relationship between the companies. So, I’m very excited to see what Apple announces next year.

There are also a wide range of smaller companies that produce semiconductors and electronic components that will be strong beneficiaries of this trend. These are the kinds of companies that I recommend in Exponential Tech Investor.

VB: Thanks as always, Jeff.

JB: Anytime.

Editor’s Note: Tune in tomorrow for Jeff’s next prediction when we’ll discuss biotechnology and the precision medicine revolution. Has the biotech winter thawed? Why are larger biotechs going on a buying spree? And what does the future of genetic editing hold? More on that tomorrow.