The Internet of Things connects the real and virtual worlds. This industry helps people control connected objects with their smartphones. For example, a coffee maker will make a cup of coffee at the right time, and a fitness bracelet will monitor your blood pressure. In the coming years, IoT devices will become entire buildings, cars, clothing, and just about everything we use.
According to research by Fortune Business Insights, the Internet of Things market will reach $1.46 trillion by 2027. The industry is expected to grow at an average annual rate of 24.9%. Major players benefiting from the growth of the IoT industry are Amazon, Microsoft, Oracle, Intel, Qualcomm, NXP Semiconductors, Analog Devices, IBM, Cisco, AT&T, Bosch, etc.
There are many reasons and ways to invest in the Internet of Things. However, there are also certain risks of investing. Let’s talk about first things first in this article.
Why invest in the Internet of Things?
In recent years, the world has seen an increase in investment in projects to implement Internet of Things (IoT) solutions. Utility management, transport monitoring, insurance, carsharing, equipment diagnostics – are just some of the popular IoT solutions.
With the introduction of wireless solutions, billing time for actual resource consumption is reduced. Fuel consumption at production facilities is decreased, and it becomes possible to provide monitoring and optimization of production processes in places where it was previously impossible due to technological limitations. IoT solutions also continuously monitor climate parameters and optimize operation modes of data center engineering systems.
Although at many factories – primarily chemical and petrochemical – the automation of technological processes is limited by the conditions of hazardous production. Fortunately, wireless sensors in spark and explosion-proof versions are now available, although not in mass quantities. Sensors measure temperature and humidity, as well as monitor leaks and other production indicators.
The Internet of Things is also medicine, with monitoring of sleep quality or blood sugar levels, heartbeat monitoring, breathing of patients with respiratory pathologies. It is a voice-activated, Wi-Fi-connected voice assistant that advises on the weather and currency exchange rates.
But the main value of IoT solutions allows a complete overturning of approaches to business organization, changing the corporate mentality and understanding of proper business processes organization, in particular – to move from product to service business model. Analysts see one of the reasons for investing is that even limited experience with the Internet of Things shows that it provides a predictable return on investment over a while, allowing for lower costs in the long run.
We took a comment from J.Brady Grygrowski, a financial advisor at Equitable Advisors, on if it is worth investing in the Internet of Things, to which he gave the following answer:
“Certainly it’s worth investing in companies that create within that space, but like everything you want to invest in, do your research! Look for cash flow and experience in the space, who are they partnered with, what is that companies value proposition”.J.Brady Grygrowski Financial Advisor at Equitable Advisors
How to Invest in the Internet of Things
Do the research
Before choosing which IoT stocks to invest in, you need to start with research. It is worth reading a lot of information about the industry in large and individual companies, finding out news in newspapers, magazines, blogs, or any other sources. You can also ask experts for help. After all, the more you know, the better decisions you can make.
Decide how much industry exposure you want
Choosing a company to invest in depends on how much industry risk you want to take. For example, you can choose those that depend entirely on the Internet of Things as a core business like Skyworks or Sierra Wireless. You can also choose companies whose products and services are more diversified.
Regardless of the choice, you need to know how exposed a company is to IoT and how broad its customer base is.
Determine how much you want to invest
Think about the extent of your presence in the industry relative to your position. The more stocks you buy, the higher the possible return on an equity investment, and the higher the risk.
You can limit your risk by diversifying your portfolio into different types of investments and instruments within the same asset class. This way you protect yourself in case of unforeseen circumstances.
Find a broker for the transaction
As with any stock purchase, you need to set up a broker to support the stock purchase of your chosen company. If you want to invest in companies outside your country, you need to find a broker who will buy shares on other exchanges.
And at the very end, when you have made your choice, place your order with your broker online, over the phone, or in person.
Which IoT startups have attracted investment
LittleBits is an American company that started as a small project in 2011. The main goal was to make open-source hardware so that users without technical expertise could create smart devices and systems. In 2014, the company introduced the CloudBit Wi-Fi module for connectivity to its products. Two years after launching, they received more than $11 million in funding and in 2015 received another $44 million. Their development kits are now being used in 2,000 schools in 70 countries. Their popularity is also in the affordable pricing model, as a starter kit costs just $100.
Anodot is an American analytics company that uses machine learning and artificial intelligence to monitor businesses and detect anomalies. About 500 companies in the telecommunications, financial and digital sectors rely on real-time autonomous business monitoring software to track incidents that affect an organization’s revenue and expenses.
Anodot has raised a total of $64.5 million. Large investors such as Intel Capital and Samsung NEXT are interested in the company.
APX Labs is a U.S.-based company for people in construction, manufacturing, and logistics. They develop high-performance software for wearable gadgets. In 2013, APX Labs’ Skylight helped the company raise $13 million in funding and gain media coverage. So now APX Labs is working with Tesla, General Electric, and Boeing.
The number of wearable devices is expected to reach 501 million worldwide in the coming years. This is where APX Labs saw business opportunities. Skylight allows companies to deliver instructions and important data via wearable devices on a large scale.
Myriota is an Australian company that focuses on Internet of Things projects. The company works to provide affordable, high-quality satellite communications. Their developments include innovative solutions for transmitting information about how equipment functions, which can be located anywhere on the planet and at a great distance from the communication point. Practical applications are useful for the industrial sector. Technology helps with remote monitoring of machinery and measuring the water table.
In 2020, Myriota raised $19.3 million in another funding round. Among the interested parties are investment funds, as well as the former Prime Minister of Australia and the Boeing Air Corporation. The company itself was founded in 2015, and over the entire period, it managed to get funding of $37 million, thanks to which it is actively developing and improving its developments.
Invoxia is a French company that specializes in speech recognition technology and has received the Amazon Alexa Foundation Award. Earlier, the company announced Triby, a non-Amazon smart speaker that supports Alexa and lives in the kitchen. Triby supports voice calls, messages and has a display.
The company has chosen a promising direction, as the global speech and voice recognition market will be worth $11.96 billion by 2022. And the increase in visibility as Invoxia led to work with the company, which was later acquired by Facebook.
Risks of investing in the Internet of Things
We are increasingly using smart devices in homes, businesses, and cities. But as the IoT market grows, so do the risks. First and foremost is the issue of ensuring the smooth operation of IoT devices and systems, despite possible natural failures or hacker attacks. The rapid introduction of smart devices into our lives threatens to spy on and undermine basic economic mechanisms. Any user with programming skills can access every possible system. The volume of data is constantly growing and there is no single standard for data transmission.
We asked what the risks of investing in IoT might be and this is what he said:
“This sector’s growth could be affected by even a mild recession. Emerging regulations for privacy and cybersecurity can force companies back to the drawing board to amend their software, delaying product launches and affecting existing product lines, which would affect a company bottom line hurting it’s stock price”.J.Brady Grygrowski Financial Advisor at Equitable Advisors
All this will make security the most important area in the context of the development of the Internet of Things, as well as a separately interesting niche for investors.
Moreover, investors should understand the risk concerning companies’ activities about the IoT. For example, 40% of Skyworks’ revenue is tied to Apple. And if you buy shares in both Apple and Skyworks, you can take on more risk.
Top 10 popular Internet of Things stocks to invest
Advanced Micro Devices (AMD)
AMD provides AMD Embedded products, x86 microprocessors, chipsets, discrete graphics processors (GPUs), etc. The company’s segments include computing and graphics, enterprise, embedded, and semi-custom IoT solutions.
Their stock was the leader in 2019 and 2020. AMD has increased its presence in this segment. Over the past few years, the company has expanded to release embedded processors optimized for IoT requirements.
AMD earned 52 cents per share on sales of $3.45 billion in the March quarter. Analysts had expected AMD’s earnings to be 44 cents per share on sales of $3.21 billion. On a year-over-year basis, AMD’s earnings were up 189 percent and sales were up 93 percent. Also, AMD expects revenue growth of about 50% over 2020. That’s up from the previous forecast of about 37% growth in 2021.
Broadcom is a U.S. company that specializes in integrated chips and is one of the twenty most successful companies that sell semiconductors. The company focuses on security and offering solutions for the Internet of Things through its 2019 acquisition of Symantec Enterprise Security. Services include USB device scanning to protect against malware transmitted through flash drives and other USB accessories, etc.
Their stock is up about 6% in 2021 and has shown 67% growth over the past 12 months.
The company is known primarily for the iPhone, but this is not the only sector in which work is being done. Apple works in such areas as the creation of smart homes, the production of wearable devices – smartwatches, cooperation with car manufacturers (while developing its smart car), and other sectors of industry. Apple has more than 1.65 billion active devices, including iPhone, Mac, iPad devices, and other products. Most of them are connected to the Internet.
Apple’s 2020 revenue was $274 billion, where 50 percent of iPhone sales came from. Apple’s services division was the second-largest segment, accounting for 19 percent of the company’s revenue in 2020. The company is expected to exceed $2 trillion in 2021. And the company’s shares, which have risen 68% over the past 12 months, have already become a popular investment option.
Microsoft is the world leader in information technology. Supplies a wide range of devices, software, and IT services. The corporation operates in more than 190 countries. Also, Microsoft is partnering with Walmart. The American company, which runs the world’s largest wholesale and retail chain, uses Microsoft’s cloud and artificial intelligence technologies, including Microsoft Azure and Microsoft 365, to make shopping faster and easier for shoppers. In addition, the corporation plans to capitalize on the burgeoning market for autonomous vehicles.
The company’s stock currently trades at a discount to the industry average, and it also pays a nice dividend.
Intel is a company that makes electronic devices and computer components from chipsets and microchips to processors. They divided strategy for the IoT market into providing sensors and technologies to connect ordinary devices to the network and make them “smart”, the ability to collect and process information at the design stage, and the development of autonomous devices that can collect, transmit information and make decisions depending on the results of the analysis.
In 2020, the company underwent some difficulties by outsourcing semiconductor chip production. When the company moved production overseas, investors became concerned about the company’s future. This led to a price drop in mid-2020. In 2021, however, the stock rebounded and continued to rise steadily.
The company’s annual revenue in 2020 was nearly $78 billion. Intel has been increasing its annual research and development spending, surpassing $13.5 billion in 2020.
Cisco is a company that develops and sells networking equipment designed mainly for large organizations and telecommunications enterprises. Recently, the manufacturer has been expanding its business in the Internet of Things sector to increase its competitiveness in the future. Cisco sells IoT-related hardware and software, offering customers the ability to integrate everything from transportation fleets to assembly lines into a single network. They paid special attention to the mobile segment of the market with its Cisco Internet of Things cloud software.
Cisco is a low-risk IoT investment. The company is very profitable, generating an adjusted net income of $13.7 billion on revenue of $59.3 billion in 2020. Additionally, the company is sensitive to economic conditions, which is a good way to gain access to IoT without a lot of risks.
This company produces some of the best Snapdragon mobile processors, which get better and better with each generation. The presence of the Qualcomm Snapdragon processor is a guarantee of high smartphone performance. It is these chipsets that make users buy smartphones in which they are installed. However, the company produces not only flagship models of chipsets.
Qualcomm stock is on the rise. Despite the downturn in March 2020, the company came back to normal, the share price peaked in January 2021 and is still high.
Dexcom produces medical devices for monitoring glucose levels in diabetic patients. The system developed by the company includes an applicator, a sensor, and a touch-screen receiver that displays real-time glucose information. Smartwatches and smartphones can connect to this system.
Increasing rates of diabetes and the shift to glucose monitoring will give the company many opportunities for growth in the coming years.
For 2021, Dexcom expects total revenue of approximately d $2.21 billion to $2.31 billion, representing expected growth of approximately 15% to 20% during 2020. This growth forecast takes into account growth in sensors due to increased awareness of CGM for people with type 1 and type 2 diabetes, continued international expansion, changing channel patterns, and overall market dynamics.
Alarm.com is a cloud-based platform that targets the residential and commercial smart home market. The company covers the needs in the security segment by controlling cameras, lighting, and locks. Alarm.com works with service providers to sell platforms to consumers and businesses. They work with 9,000 service providers and have over 6.8 million subscribers.
The company expects the global smart security market to grow 48% by 2022 to help grow the platform.
Amazon is a powerful player in cloud computing, a strong competitor to giants such as Microsoft and Google. The Internet of Things is an important part of Amazon Web Services’ most popular business. Amazon’s cloud technology helps companies around the world work more efficiently with electronic-device software, management services, and data processing and transmission services.
Amazon’s 2020 sales were $386.06 billion, an increase of $105.54 billion over 2019 and a 27.34% increase. At that time, Amazon’s 2020 profits were $21.33 billion, an increase of $9.73 billion over 2019.
As for which companies to invest their money in, J.Brady Grygrowski gave us the following comment:
“Market conditions coming out of the pandemic are interesting to say the least! There is a lot of uncertainty which can lead to volatility. supply lines and production have been limited causing price increases so profits could be reduced”.J.Brady Grygrowski Financial Advisor at Equitable Advisors
Previously, we wrote about how to invest in the Internet of Things. We have cited only some of the most famous examples, but there are many more successful companies with high potential.
Everyone wants to improve their life. IoT tools can increase productivity in many industries, such as healthcare, manufacturing, and transportation. Products that use IoT devices have more potential to connect with consumers.
That’s why there’s already a pool of companies that have the infrastructure necessary to develop this area. If you plan to invest in IoT, you won’t have to look for the right shares for a long time. When forming a portfolio, don’t forget about hardware manufacturers for the Internet of Things. The IoT has high potential, you can earn a lot from the amount invested in a couple of years. So if you decide to invest – do not put off investments indefinitely, you can miss the right moment.