Internet of Things Stocks: How to Invest
The Internet of Things (IoT) has the potential to change so many facets of our lives. Things like the way we…
- cool our homes
- cook our dinners
- work out
- drive cars
- and so much more.
That’s why IoT stocks are currently so popular with investors.
You may have heard the term before, but what exactly is the IoT, how does it work and what makes it so popular for investing? I’ll discuss below and introduce several key stocks you should watch.
What Is the Internet of Things?
Internet of Things stocks are shares of companies that make up the interrelated network of everyday devices connected to the internet to acquire and analyze data, take action and optimize performance.
Because this world of smart devices – which includes everything from hygiene accessories, refrigerators, dog collars and locomotives – is connected to the network, they are able to “talk” to each other and share data.
One of the most famous examples of the Internet of Things in action encompasses a smart thermostat. It works like this:
- A local thermostat in your living room uses sensors to acquire data about the current climate conditions in your home.
- It transmits this data through the internet to a central corporate system that utilizes artificial intelligence (AI) to analyze the collected data.
- Based on the analysis, it transmits the ideal settings – the best temperature for your room – back to the thermostat to keep you comfortable and save you money.
There are currently more than 7 billion devices connected to the IoT right now. And that doesn’t even include our laptops, tablets or smartphones.
But this number is predicted to vastly grow with increasing consumer demand and the innovation of new smart devices and technologies.
In fact it is predicted that by next year there will be more than 20 billion IoT-connected devices.
In 2018, the Internet of Things industry reached $130 billion in revenue and is expected to reach $318 billion by 2023 based on a compound annual growth rate of 20%.
Other technologies such as AI, 5G wireless technology, machine learning and more combine with IoT to increase efficiencies and improve business (and home) decision-making.
IoT Stocks to Watch
Because the Internet of Things industry could experience such high growth, IoT stocks are very much in demand by investors. But which companies in the industry should you be paying attention to?
Here are some of the top IoT stocks on the market:
1. Skyworks Solutions
Skyworks Solutions (Nasdaq: SWKS) is a semiconductor manufacturer that is powering the IoT ecosystem in spaces like:
- the automotive industry
- home automation
- the industrial sector
- machine-to-machine (M2M) communication
- the medical field
- mobile devices
- smart energy
- wearables.
This IoT stock has a current market capitalization of about $15 billion, a price-to-earnings (P/E) ratio of 17 and an earnings per share (EPS) of $5.26.
Not only is Skyworks a major player in the Internet of Things, but it also has a huge stake in the 5G wireless revolution, which will be another crucial technology in the coming years.
Major customers of Skyworks include Amazon (Nasdaq: AMZN), Apple (Nasdaq: AAPL), General Electric (NYSE: GE), Huawei and Microsoft (Nasdaq: MSFT).
2. Microsoft
Microsoft, with its cloud computing platform Azure, is another major player in Internet of Things stocks. Its IoT solutions help companies collect data, find new insights and power their own IoT technologies.
Microsoft’s enterprise solutions are made to be accessible to organizations of any size. They have also committed to investing $5 billion in IoT research to further innovate and stay ahead of the technological curve.
Industries of focus include…
- energy
- discrete manufacturing
- process manufacturing
- transportation and logistics.
The stock has a current market capitalization of about $1 trillion, a P/E ratio of 28 and an EPS of $5.06.
3. Apple
Apple’s HomeKit product allows people to connect with and control Internet of Things devices in their homes. It essentially allows you to use your smartphone as a remote control for all of the networked devices in your house.
Devices that can connect with your HomeKit include…
- locks
- lighting
- your thermostat
- and more.
Although it doesn’t connect with as many devices as Google Assistant or Amazon’s Alexa, its portfolio of connected devices is growing.
You can control all of your HomeKit accessories with the Home app and even ask Siri to control your devices without a touch.
This Internet of Things stock has a current market capitalization of about $1 trillion, a P/E ratio of 21 and an EPS of $11.78.
Other IoT Stocks to Watch
Company
Ticker Symbol
Earnings Per Share
Intel Corp.
(Nasdaq: INTC)
4.30
General Electric
(NYSE: GE)
-2.16
Amazon
(Nasdaq: AMZN)
24.10
DexCom
(Nasdaq: DXCM)
-1.90
How to Invest in the Internet of Things
1. Do Your Research
You should always start with research. Read as much as possible about the industry at large and individual companies.
The more knowledge you are armed with, the better decisions you can make. Read newspapers, magazines, blogs and, of course, our articles here at Investment U!
2. Decide How Much Industry Exposure You Want
Depending on how much industry-specific risk you want to take on, you can select companies that fully depend on the IoT as their core business. To limit your industry exposure, select companies whose products and services are more broadly diversified.
3. Consider the Size of Your Investment
Consider the amount of exposure you want to the Internet of Things industry based on the size of your position. The more shares you buy, the larger your possible ROI on IoT stocks, but the larger your risk as well.
Make sure you limit your risk by diversifying your portfolio across different types of investments and different instruments within one asset class. That way you will be generally covered if things don’t pan out the way you hope.
For more great tips on how to buy a stock, check out one of our contributing expert’s articles “How to Invest in Stocks (5 Step Guide).”