Dan Niles sees risks in Apple. Here's how he's playing the 5G trade instead

Published Fri, Oct 30 20206:15 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

(This story is for CNBC Pro subscribers only.) Hedge-fund manager Dan Niles told CNBC on Friday he's looking to play the growth of 5G by investing in chipmakers and other telecom firms instead of Apple , which just released its first iPhone that is compatible with the next-generation wireless network. "Apple is not a good value for the growth you're getting," the founding partner of AlphaOne Capital Partners said on "Closing Bell," expressing concerns about the company's significant appreciation in share price without robust revenue growth alongside it. Some analysts believe Apple's introduction of the iPhone 5G could spur a massive upgrade cycle , as consumers go after the latest technology. But for investors, Niles said there is risk in that assumption if sales end up falling short of expectations. By contrast, Niles said he likes the upside potential of semiconductor maker Qualcomm , which is again providing chips for iPhones. The companies had been ensnared in a royalty dispute that saw Apple start using Intel chips in 2018 iPhones. "Apple's units could be down year over year. It wouldn't matter for Qualcomm. They didn't sell any chips into last year, so for them it's all upside," said Niles, who does not currently have either a long or short position in Apple. Shares of San Diego-based Qualcomm closed down 2.4% on Friday at $123.36 apiece but remains up almost 40% so far in 2020. It is expected to report its latest quarterly results after the close Wednesday. Lumentum, based in San Jose, California, presents another way to gain exposure to the new 5G iPhones without owning Apple, said Niles, who is also the senior portfolio manager for the Satori Fund . "For Lumentum, they get two chips on the high-end phone, not one, and so you've got a lot more potential," he said. Lumentum shares fell almost 3% in Friday's session, which broadly was a down day for Wall Street. The stock is up 4.3% year to date. Niles said he also owns Ericsson , the Swedish telecommunications firm that helps build out 5G networks. Just this week, the company said it had signed a deal with major cities in the United Kingdom, including London, to provide 5G radio equipment. "For us, it's risk versus reward, and that's what everybody keeps forgetting. It's always, 'What you would you buy?' Well, what are you paying for what you would buy?" he said. "At some point, what you're paying for a stock matters relative to its underlying growth rate, and that's where you get the best rewards on a risk-adjusted basis," he added.

People visit the Ericsson stand during the Mobile World Congress (MWC) Shanghai 2019 at the Shanghai New International Expo Center on June 25, 2019 in Shanghai, China.

VCG | Getty Images

(This story is for CNBC Pro subscribers only.)

Hedge-fund manager Dan Niles told CNBC on Friday he's looking to play the growth of 5G by investing in chipmakers and other telecom firms instead of Apple, which just released its first iPhone that is compatible with the next-generation wireless network.

"Apple is not a good value for the growth you're getting," the founding partner of AlphaOne Capital Partners said on "Closing Bell," expressing concerns about the company's significant appreciation in share price without robust revenue growth alongside it.