Wearable Tech

You've likely heard a lot of talk about wearable technology. But some investors may not know exactly what the term refers to, or which companies are making big bets in the space. And that's OK. Technology changes so quickly that even those of us who spend all of our time writing about new tech trends still have a hard time keeping up. 

So, what exactly is wearable tech? The easiest examples are probably the Apple (NASDAQ:AAPL) Watch and other smartwatches running Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google Android Wear. These smartwatches run apps, just like smartphones, and can collect all sorts of user data. But smartwatches are still very much a companion device for smartphone at this point. They can be used to respond to texts, phone calls, emails, etc., but most smartwatches don't have their full range of capabilities without a connected smartphone. 

Samsung makes its own line of smartwatches as well, running the company's own Tizen software. Samsung has largely stumbled through the wearable tech market, even though it was one of the first major technology companies to enter the wearable tech market. The company held just over 8% of the wearable tech market last year. But that percentage is expected to dwindle to just 2.8% by 2019, according to IDC.

Fitness trackers, like those made by Fitbit (NYSE:FIT), are similar to smartwatches in that they can track data, but they usually don't run third-party apps like smartwatches do, and don't have the same communication capabilities.

And while smartwatches and fitness trackers are two of the most popular wearable tech devices, there are plenty of others.   

Companies are developing sophisticated wearable healthcare devices that can monitor blood pressure, while others are creating smart hearing aides that pair with smartphones. And there are even companies making smart glasses that can track vision and assess whether someone has had a recent brain injury.

Ua Healthbox

Source: Under Armour.

Additionally, athletic sportswear company Under Amour (NYSE:UA) is aggressively pursuing wearable technology. The company just debuted its new HealthBox at the 2016 Consumer Electronics Show, which includes a fitness band, smart-scale and chest strap with sensors. The fitness band measures sleep, resting heart rate, steps, and workout intensity, while the smart-scale pairs with smartphones to keep track of a user's body fat percentage and wight loss. The chest strap is used to track real-time heart rate while working out. All of these devices send their data to the UA Record app to measure a user's fitness progress. The company will soon release a connected shoe and headphones as well.

While Under Armour may not be a leader in the wearable tech space by shipment numbers right now, it's certainly poised to be a major contender. 

There are plenty of companies, both large and small, that are jumping into the wearable tech trend, and with good reason. The wearable tech market will be worth an estimated $31 billion just four years from now. And those that dominate the space right now may not be the leaders when the market matures, but for now, there are clear leaders. 

The stocks that dominate wearable tech
Apple entered the wearable tech space less than a year ago and the company is already leading in the smartwatch market. Canalys estimates that Apple shipped 7 million Watch devices in the first two quarters of availability, which is more than all of its competitors combined over the past five quarters.

Strategy Analytics also predicts that Apple out-shipped all of its smartwatch competitors last year, taking about 74% of the global smartwatch market. And the Apple Watch will likely hold the top smartwatch market share position until at least 2020, according to research from Tractica.

Apple doesn't break out its Watch sales right now, so these estimates are currently the best indicator we have for how well the company's smartwatches are competing. But there's another company that dominates the wearable space right now.

Fitbit
Image source: Fitbit.

Fitbit currently holds 22% of the overall wearable market share by shipments, according to IDC, and Apple has about 17%. Fitbit has also significantly increased its revenue from its devices. In Q3 2015, the company's revenue spiked 168% year over year.

Still, the company's stock is down 43% over the past 12 months (as of this writing) despite its dominant market position and sales growth. Fitbit's stock may be able to bounce back over the short term, but its wearable tech lead will likely be overtaken by Apple, and that's making investors very nervous. 

Last but not least, Google is clearly a major player in wearable tech. Its Android Wear operating system for wearable devices is emerging as a major competitor to Apple. Android Wear is still getting started in the smartwatch space, but its strong app store presence and its ability to pair with iPhones make it the most logical competitor to Apple going forward.

Obviously, Google doesn't make any revenue by giving away its Android Wear OS. But that doesn't mean it can't generate revenue indirectly from the software. The company gives away its software so that more people will use its services, and then subsequently serves up ads in those services. It's the same thing Google's been doing for years with its Android OS on smartphones. And now Google wants to do the same thing with wearable tech software.

While the wearable landscape is wide open right now, I think Apple and Google lead the way in the near future. Fitbit will likely put up a good fight for a while, but in the next few years, I think we'll see two main wearable tech leaders, just as we've seen in the smartphone market. 

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.