The Internet of Things (IoT) has taken the utilization of Internet to a different level altogether. It is not like any market that we have known thus far. Instead, it is more like a rapidly unfolding phenomenon that has its origin in the belief that technology can truly transform our lives.
The Most Important Areas of Use
According to Statista, the number of connected IoT devices will reach 31 billion by 2020. So, it makes sense to take a look at where the increasing IoT units will most likely go. Market research firms believe that the most important use cases of IoT (and therefore, investment opportunities) are in the following areas:
Connected Vehicles include Internet and WLAN, which enable connectivity and communication with smart devices. The software platform in connected cars is generally provided by either Alphabet or Apple. Increased connectivity is gradually giving way to fully-automated self-driving cars that should be operational in the 2020s.
According to MarketsandMarkets, the global connected car market is expected to witness compound annual growth rate (CAGR) of 14.8% from 2017 to 2025 to reach $219.2 billion. Automakers and technology companies are largely working in collaboration to develop their own technology so that they can independently ship the cars.
Connected Homes include products like thermostats, IP/Wi-Fi cameras, smart locks, smart smoke and carbon dioxide detectors; smart home systems as well as smart switches, dimmers and outlets. The top technology players are Alphabet, Apple, and Amazon, which is piggybacking its Echo facilitator. The Consumer Technology Association (CTA) estimates the connected home market to grow by more than 40% this year.
Wearables segment has a whole lot of players. Smart watches from Apple and Fitbit offer great functionalities. Garmin offers premium devices for the niche category of professional sportsmen. Microsoft and Samsung also offer fitness bands. The Consumer Technology Association (CTA) estimates that this segment will grow 4% in 2018.
Smart cities have been made smarter with the use of telecom networks, computers, software, storage, and audio-visual systems collectively called information and communication technology (ICT) on the one hand and IoT devices on the other. This interconnectedness is aimed at managing power and water supply, transportation systems and hospitals, educational institutions, and even facilitating better law enforcement.
While some smart cities have been planned already and are in various stages of implementation, existing cities are also becoming gradually smarter. One example is Manchester, where Cisco led the deployment of a new smart city lighting system as part of the ongoing CityVerve project. India is planning 100 smart cities, which will benefit companies like Cisco, IBM and ABB.
According to Mordor Intelligence, the global smart cities market is expected to witness CAGR of 24.2% from 2017 to 2023 to reach $1944.7 billion.
Strong CAGR Expected Over the Next Five Years
Analyst firm IDC expects worldwide IoT spending to witness CAGR of 13.6% over the next five years to reach a total of $1.2 trillion in 2022.
Analyst firm ABI Research expects IoT device management (DM) revenues to exceed $20 billion by 2023. The firm anticipates commoditization of DM services to rise as a result of increased competition, growth of standards in the market, and new device management solutions from major cloud providers such as AWS and Google.
5 Stocks to Keep an Eye On
Amazon AMZN is one of the major players in the connected-homes market. Alexa powered Echo devices are going great guns and help the company sell products and services. Artificial intelligence (AI) driven Alexa has already been integrated into a host of everyday devices for the digital home, converting the nascent smart home market into a potential area of growth in a very short time.
Currently, Alexa is equipped with more than 30,000 skills and can connect to any stream of business. It’s an important method of collecting household information, since Alexa listens to commands and stores everything that it hears in the cloud.
Amazon Dash button is also an example of an IoT connected device. These are small wireless devices each with a button and linked to a particular product. Users can keep them anywhere in their homes and press one to get automatically place orders. The product reaches the customer in time. All it needs is a Wi-Fi connection.
Amazon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Amazon.com, Inc. Revenue (TTM)
Apple AAPL targets a number of segments of the IoT market, with its Watch and connected home products. Through acquisitions and the health data collected on its wearables, Apple is growing its capabilities as a provider of technology for pharma/biotech purposes.
Through its HomeKit framework for connected devices, Apple is streamlining IoT experience for other companies. The company is also developing self-driving technology but has kept the developments mostly to itself. Perhaps the greatest evidence of its interest in the market is the billion dollars it invested in Didi Chuxing. Apple currently carries a Zacks Rank #3.
Apple Inc. Revenue (TTM)
Intel’s INTC IoT business sells processors and related hardware and software technologies to a number of large segments like retail, industrial, automotive, and smart cities. The company is exploring new areas that require more specialized chips, related platform and software designs applicable to its Internet of Things Group IoTG.
IoTG is the biggest part of Intel’s overall business today and is likely to be a significant growth driver for the company. This is especially true as the company continues to push its offerings to automated cars. Intel carries a Zacks Rank #2 (Buy).
Intel Corporation Revenue (TTM)
International Business Machines IBM designed its Watson IoT platform as an enterprise solution to enable other companies to develop products and solutions. This has helped IBM get projects across multiple industries including automotive, manufacturing, retail and utilities. Several companies have been using Watson based solutions to manage, assets, inventories and facilities.
IBM targets smart cities through its infrastructure services and Watson software platform. IBM carries a Zacks Rank #3.
International Business Machines Corporation Revenue (TTM)
International Business Machines Corporation Revenue (TTM) | International Business Machines Corporation Quote
Alphabet’s GOOGL car initiative seems to have advanced with Waymo recording millions of miles of testing and making some key partnerships (indicating Intel, Jaguar, Fiat Chrysler, Lyft). The Google division has developed the Wear OS for wearables. Through its life sciences division, the company partnered with Johnson & Johnson to develop robot-assisted surgical technologies.
Google also has a number of offerings in the connected home space through its Nest acquisition. Another Google initiative that is currently in progress is Sidewalk Labs, aimed at making urban life easier. It is currently involved in designing a district in Toronto’s Eastern Waterfront aimed at tackling the challenges of urban growth. This along with its fiber efforts seems to indicate a longer-term interest in smart cities.
Alphabet Inc. Revenue (TTM)
Wrapping Up
It's hard to find stocks that are currently being driven by IoT alone. All these companies are currently driven by a combination of factors. So, the IoT opportunity is not reflected in either their ranks or prices. But these companies are the ones that have perhaps made the greatest progress in the segment and are playing a big role in shaping the market. Therefore, a discussion of IoT stocks is incomplete without a mention of these companies.
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