China is likely to win the race to next generation wireless technology, according to analysts. The negative consequences for the U.S. of losing could take decades to overcome.

Deloitte, the global consulting firm, released a research report last week about the state of fifth generation wireless infrastructure deployment. China is miles ahead. Its lead is growing.

Investors should ignore politics and focus on the implications.

5G is not merely an upgrade from 4G/LTE technology. It is orders of magnitude better. Several telco hardware makers have demonstrated download speeds of 10 Gbps, a 1000x improvement over 4G. Latency will shrink to 1 millisecond, from the current LTE standard of 50 msecs. Network capacity will improve, too. This quantum leap is a game changer.

It will unmoor infrastructure from cables and wires. It will mean connected and self-driving vehicles. It will bring true broadband to remote locations. Virtual reality and the mobile internet will blossom with fast, always on, always connected, real-time experiences. Factories will benefit from ubiquitous sensors and networked smart robots.

These new technologies are key to future world economic growth.

It's no coincidence self-driving cars and robotics are core components of Made in China 2025. The set of overarching goals is designed to push the Chinese economy away from low cost, low margin manufacturing. Taking the lead in forward thinking technologies would put the communist country in league with Germany, Japan and the United States.

The Chinese have spent $24 billion, building 350,000 new cell towers since 2015. And the South China Post reported in June, the Ministry of Industry and Information Technology is forecasting an investment of $411 billion through 2030. For comparison, since 2015, only 30,000 towers were constructed in the U.S.

In 2016, the Economist predicted data network effects would fuel the rise of the new economy.

The Trade

A decade ago, Action Alerts PLUS holding Facebook (FB - Get Report)  and Netflix (NFLX - Get Report) benefited handsomely by growing their networks. More connections increased the value of the network to users, leading to even more users, and more connections. Even in the midst of privacy controversies, or rising prices, users have remained captive.

5G networks will not be limited to connecting people consuming information. Next generation networks will connect all sorts of things capable of exchanging data all day, every day. Connections beget value, and more connections.

U.S. social and media networks built dominant positions by understanding these interactions. They automated and innovated processes at scale. By deploying 5G first, Deloitte analysts fear the Chinese are about to do the same with data networks. The result would be a decades lead in tomorrow's technologies.

Ultimately, the Chinese are playing by a different set of rules. Authoritarianism allows state agencies to collect unprecedented amounts of personal data. Meanwhile western democracies rail against the opaque privacy policies of Silicon Valley and Europe.

Read More 'Markman On Tech'

Investors should focus on the opportunity. The money will follow.

Qualcomm (QCOM - Get Report) designs integrated circuits for the telecommunication industry. Since the dawn of the smartphone era, its intellectual property has dominated the sector. The Financial Times reported in January, that the San Diego company signed an agreement will a consortium of the leading Chinese smartphone makers. The goal is to launch 5G devices in early 2019.

In August, the company settled a long running anti-trust dispute with Taiwanese regulators. Qualcomm agreed to pay $93 million in fines, and will invest $700 million in Taiwan over the next five years. Although the terms may seem steep, the company will maintain its controversial licensing model based on handset selling prices.

Smartphones are arguably the least interesting use case for 5G wireless technology. However, Qualcomm's alliance with Chinese OEMs and the settling of legal skirmishes, puts the company's IP in a steering role for future applications in Asia.

Eventually, connected cars, VR headsets and billions of sensors in the field will all need low power processors, modems and antennas.

Qualcomm's stock is up 13.2% this year, and 42.2% during the past 12 months. The market capitalization has risen to $102 billion. Shares now trade at 16.4 times forward earnings, which is not expensive given the outlook.

To the detriment of the U.S., China is going to win the 5G race. Qualcomm managers bet well. Now shareholders are set to win.


To learn more about my recommendations at the crossroads of 5G wireless, governmetn policy and chips, check out my daily newsletter Strategic Advantage

To learn about my practical research in the short-term timing of market indexes and commodities, check out my daily newsletter Invariant Futures

I have a position in Qualcomm.