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10 Internet of Things (IoT) Stocks for the Connected Future

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Internet For Everything

Tech enthusiasts have been talking for a while now about the “Internet of Things,” or IoT. What it means might vary greatly depending on who you ask.

The general idea is a hyper-connected world where every item around us transmits back data about its status, consumption, etc., and is remotely controllable. What constitutes an IoT device or not will depend, creating varying expectations and understanding of the concept.

How far it really goes depends. Some envision a fully connected world where every light bulb and house appliance is connected independently. Others would see it first reaching industries, the electric grid, and large devices like HVAC and cars.

The IoT market is expected to grow at an impressive 26.1% CAGR and reach a total of $3.3T by 2030, from “just” $662B in 2023.

Source: Statista


10 Internet of Things (IoT) Stocks for the Connected Future

1. Amazon.com, Inc.

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The e-commerce giant is also a major factor in smart homes and a reseller of countless connected devices. The company is equally active in cloud computing, controlling 32% of the market through WAS, a key infrastructure requirement for IoT to become part of everyday life.

The company's smart home offer includes Alexa and Echo smart speakers, security systems, as well as various appliances, WiFi & network solutions, lightning, thermostats, and power.

Source: Amazon

Integrating other IoT systems into Alexa allows for voice control of the whole house. Amazon sold half a billion Alexa-enabled devices globally since inception.

Amazon's offer around Alexa also complements the wider Amazon products of Kindle e-reader, Prime subscription, and e-commerce services while being backed by AWS in the background. This makes Amazon a strong IoT actor but far from a pure play in the sector, with e-commerce and cloud making the company's core for the foreseeable future.

2. Broadcom Inc.

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Broadcom manufactures connected devices and Internet infrastructure, from physical optic fiber to antennas, routers, semiconductors, and software. It is active in all infrastructural, industrial, enterprise, and consumer-level connectivity sectors.

This means the company is present at every level of IoT, from homes or factories to data centers.

Source: Broadcom

The boom in demand for more connectivity and Internet capacity has strongly increased Broadcom profits, with free cash flow doubling in the last 5 years.

This also allowed Broadcom to increase its dividend by 38% CAGR since 2016, almost multiplying it by x10.

Because Broadcom is so deeply embedded in the global Internet, it should be a major winner of a wide and consistent increase in data volume generated by IoT becoming commonplace. So this can be a good stock to bet on the world getting increasingly connected, whether it is smart homes, cloud databases, or enterprises.

3. QUALCOMM Incorporated

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Qualcomm's Snapdragon chips and other semiconductor products are at the heart of a large section of the world's digital experiences. This includes Samsung smartphones, more recently 5G chips to Apple, cars’ digital interface and connectivity, smartwatches, smart homes, audio devices, but also industrial systems for electric grids, retail, automation, robotics, healthcare, etc…

Source: Qualcomm

In Q2 2023, the company derived $1.5B of revenues from and $434M from automotive, out of $7.2B total revenues. So, for now, smartphones are the bulk of Qualcomm's revenues, but IoT is also quickly growing.

The company is also active in the AI field, with moves to have AI models being able to run on Snapdragon, as well as AI services for smartphones.

Being a leader in 5G, the only telecom system able to handle the volume of data likely to be generated by the wide adoption of IoT, Qualcomm is well positioned to see its chip sales grow in proportion.

The rise of EVs and more connected cars is another growth sector for the company, especially now that traditional automakers are going all in on these technologies.

So, not dissimilar to Broadcom, Qualcomm is a good stock to collect a part of the budget going to IoT, as well as 5G infrastructure, especially in the context of Chinese rivals like Huawei getting banned in most Western countries.

4. Siemens Aktiengesellschaft

Siemens is a strong electronic company in the industrial sector, with activity in industries, infrastructure, mobility, and healthcare.

Source: Siemens

The company activities in IoT are spread in several segments, including automation (62% of total digital industries) and smart infrastructure. The healthcare activity focuses more on imaging, analyses, and robotics, while the mobility segment is mostly train and rail infrastructure.

The company sees a large opportunity in automation from the globally declining population and “glocalization” (or “re-shoring” of industrial capacity closer to the final markets). The increasing presence of renewables in the electric grid also increases the demand for a “smart grid” able to handle these more intermittent and variable power sources.

In the niche where it is active, Siemens is a very strong competitor, ranking #1 for factory automation, rail automation, grid automation, and vertical industrial software (including 1,300 cybersecurity experts).

Siemens' business segments out of healthcare are expected to grow at 10-16% for 2023.

Source: Siemens

Siemens is a stock positioned to benefit from electrification, re-shoring, IoT, automation, and overall the increasing level of technology in our industrial processes. So it is not directly exposed to the consumer side of IoT and will profit the most if IoT is first adopted en masse by utilities and industries.

5. Schneider Electric S.E.

Schneider is a company active in the electric sector and industrial automation. It is positioned to benefit from increasing demand for energy, electrification & renewable, and digitalization of industrial processes.

Source: Schenider

When it comes to IoT, Schneider offers components or full solutions in almost every possible sub-section of IoT, including residential, building management, solar solutions, power grid, data centers' power supply and cooling, automation,

The company relies heavily on its partners for its sales, with 60% of revenues done through its 650,000+ partners and service providers.

The company has been growing its revenues by 16% in Q1 2023 and its dividends by x3 since 2009. Schneider's management sees a double-digit growth in the next years as sustainable.

At first glance, Schneider's products are less high-tech than computer chips or robots. However, they are needed for building the energy infrastructure supporting the green revolution, automation, and electrification. So this can be a good stock for a “pick and shovel” strategy, where Schneider sales will closely mirror the build-up in data centers, solar farms, EVs, smart factories, etc…

6. NXP Semiconductors N.V.

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NXP is a major producer of microcontrollers, sensors, and wireless antennas. Its main sectors are automotive, IoT, mobile, and telecom infrastructures.

Source: NXP

A strong growth driver for the company has been the changing design of cars, with radar systems, electrification, and wireless connections. The demand for RF power in 5G infrastructure is another source of growth. The company expects these activities to keep growing at a high 20-25% CAGR, while the rest should grow much more slowly.

Source: NXP

The company has grown its revenues by 14% CAGR since 2019, driven by the growth of the automotive segment (18% CAG) and IoT (19%).

The growing importance of IoT and automotive makes NXP very sensitive to the pace of adoption of IoT and EVs. A further segment likely to matter increasingly for NXP is smart cities.

NXP's future success will depend on its ability to remain a leader in competitive markets. Currently, it is the leader for most of its automotive and mobile segments while having a less solid position in IoT and telecom.

Source: NXP

So, while it is an interesting IoT stock, investors will need to be familiar with the EV market as well, as this is, for the short term, the main driver of NXP revenues and growth.

7. Johnson Controls International plc

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Johnson Controls produces and services HVAC equipment, fire detection & suppression, refrigeration, energy systems, and smart homes. The company is the result of the merger of Johnson Controls and  Tyco in 2016.

With its focus on cooling + heating, and safety, Johnson Controls is active in a $300B+ total addressable market. Johnson sells connected thermostats, wireless security systems, and indoor air quality controls for residential IoT.

The company should benefit from the push for greener and more efficient buildings and cleaner air systems after the pandemic. The company's 2 main activities are residential and commercial HVAC and fire systems, with 46% of revenues generated out of the USA.

Source: Johnson

Thanks to a comprehensive offer of sensors, fire safety, security, and air systems, Johnson can provide integrated solutions for the entire building management, increasing safety while also reducing costs through more efficient resource management.

With more than 2/3nd of the company's revenues coming from equipment or installation fees, it is greatly exposed to the spending of the building industry. So, while this can also include renovation and repairs, a slowdown in commercial and residential real estate construction is a risk for the company, especially in the context of rising interest rates.

In the long run, the efforts Johnson spent on R&D since 2016, resulting in multiplying its patents number by 10x should also help it stay at the edge of an industry quickly turning more technological.

Source: Johnson

8. Acuity Brands, Inc.

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Acuity is a company focusing on smart and efficient lighting systems and indoor space design through the usage of LED lamps and UV air purification systems. The company is also selling lighting systems for horticulture and indoor farming.

Acuity's lamps allow for controlling colors dynamically and have embedded controls, allowing for easy installation of smart & connected lighting, reducing total costs, and ensuring the building complies with increasingly severe building energy codes.

Source: Acuity

Source: Acuity

It is also relatively unique regarding UV lamps, as Acuity systems do not require people to leave the room and can work as well for occupied spaces like hospitals or classrooms.

Regarding design services, Acuity, through Atrius, offers the possibility to automate carbon footprint reporting, helping the company to gather data for their ESG reporting automatically. It also provides integrated energy management software with automated utility bills, maintenance schedules, and energy reporting.

Through its Distech branch, Acuity also offers software for designing HVAC systems and air control apps.

The company has seen sales decline in Q3 2023, with net sales down 6% and flat adjusted operating profit. This is likely due to a slowdown in commercial real estate following a related banking crisis in the US in the first part of 2023.

It is still to be seen how the US real estate sector will be impacted by rising interest rates. Still, at a rather low P/E and a stock price back to 2015 levels, Acuity can be a good pick for investors willing to brave short-term risks for long-term opportunities in building and getting more efficient in their lighting systems.

9. Alarm.com Holdings, Inc.

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As its name indicates, the company started in 2000 as a seller of connected security systems for both homes and businesses and did its IPO in 2015. It allows its users to control and check their properties via a dedicated app remotely.

Alarm.com currently has 9.1 million subscribers and 11,000+ service partners performing security checks and installations.

Since 2019, the company developed AI-based video analytics to evaluate security risks, complemented by the acquisition of OpenEye.

Security is the primary reason people adopt smart home systems, way above convenience or energy efficiency. This gives Alarm.com an advantage, as it is active in the sector where people are already convinced of the pertinence of smart homes beyond the usual tech enthusiasts.

Source: Alarm

In fact, the company dominates its niche, with 9 out of 29 million homes equipped with home security in the USA & Canada powered by Alarm.com. However, it has only half a million in the international market, leaving much room to increase market penetration. The company expects that up to 400 million homes might be relevant for the home security markets, more than 40x Alarm.com's current client count.

 

Source: Alarm

The total addressable market is even larger for commercial properties, with 500,000 clients currently and a total of 118 million properties globally considered as “serviceable business.” With already 11 million businesses monitored, Alarm.com's current market share is only 4.5%, and even less for international markets, leaving plenty of room for industry consolidation.

Alarm.com is not so much a builder of IoT systems than a promoter and integrator of these solutions, able to bring together all manner of sensors and smart devices with a full cloud-based security service adapted to each situation.

Alarm.com's scale allows it to deploy AI solutions and benefit from economies of scale quickly. The company also has a history of successful acquisitions, from AI vision to drones to software.

It also expects to see new growth opportunities from its energy management service EnergyHub, property management PointCentral, and HVAC automated smart home solution Building36.

10. Impinj, Inc.

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Impinj is a producer of RAIN (RAdio IdentificatioN) RFID tag chips allowing for tracking individual items, pushing for a vision to “Connect Everything to the IoT.”

The company might be justified in that sort of declaration, with revenues up by 20% CAGR since 2018, having shipped 85 billion tags and sold 4 million readers.

Just in 2022, RAIN tags allowed for tracking of 34 billion items, an impressive number, but still only 0.3% of connectable items like food, auto parts, parcels, parcels, cosmetics, etc. This is in large part due to the fact that RAIN RFID technology is still, for now, mostly used only by some large corporations, making an impressive 2,000+ client list for Impinj, from NASA to Coca-Cola and Walmart.

By tracking every item, tag chips can solve many issues, from inventory management to logistics or even shoplifting, while allowing for increased efficiency through automated checkout and omnichannel fulfillment.

Source: Impinj

When IoT often means smartwatches, smart grids/cities/homes, Impinj offers a different approach, focused on the endless movement of goods throughout the supply chain. A system of which we saw the limitations during the pandemic.

With the need for more visibility on inventory and customers getting used to self-checkout, the market for cheap tag chips is likely to grow massively, which in turn should benefit leaders in the sector like Impinj.