The Internet of Things (IoT) is a technological shift that is opening communication between the world's devices, and it looks poised to change the way the world operates -- and generate tremendous value along the way. While increasing device connectivity and insights stemming from data analytics are already having an impact, the IoT revolution is still in its early phases, and 2017 looks to be an influential year in the progression of the tech.
To help readers navigate investing in this potentially massive tech trend, we asked three Motley Fool contributors to pick their choice for a top IoT stock to buy this year. Read on to learn why IBM (NYSE:IBM), Best Buy (NYSE:BBY), and Xilinx (NASDAQ:XLNX) made the list.
Flying under the radar
Tim Brugger (IBM): Much has been made of IBM's "strategic imperatives," which include data security, mobile, cloud, and artificial-intelligence-driven solutions via its Watson supercomputer, but IoT doesn't get mentioned. Don't be fooled, though: Not only does IBM have serious plans to win its fair share of the skyrocketing IoT spending in the coming years, but it's ideally positioned to do so.
Imagine the amount of data the 24 billion connected "things" estimated to be in the IoT by 2020 will amass. It's mind-boggling. Storing, analyzing, and ultimately developing actionable results from all that information will require an artificial-intelligence-driven computing wonder of enormous capabilities -- otherwise, what good is all the data? Which is where IBM's Watson IoT cloud platform enters the picture.
The event may have flown under the radar, but IBM committed $3 billion to its IoT initiatives nearly two years ago. Since then it's acquired The Weather Company for $2 billion, utilizing Watson to analyze and provide insights from the 26 billion inquiries The Weather Company receives every day. IBM also just took the wraps off its new Watson IoT headquarters in Munich, Germany, with projects to further its reach and expand its capabilities even more.
The data all the IoT devices generate in the coming years will only be as valuable as the ability to analyze it to assist business and government with everything from customer targeting to product development. When it comes to analyzing incredible amounts of data, IBM's Watson is in a class by itself, which is why IBM is an IoT stock to buy in 2017.
A retailer benefiting from the Internet of Things
Daniel B. Kline (Best Buy): Electronics retailer Best Buy has faced and survived some major challenges in recent years. One of them has been that while televisions, laptops, and other electronics have gotten better, they haven't changed dramatically. That makes it less likely a consumer will come into a store to see the latest model, which not only costs Best Buy sales, but also robs it of the opportunity to sell warranties or installation services.
The explosion of IoT devices will benefit the retailer in two ways. First, shoppers are likely going to be more willing to come to stores to actually look at products in a category they are not very familiar with. This is already starting to happen in Best Buy stores as more shelf space has gone to connected-home products and other items in the broad IoT category.
The second major benefit for Best Buy is that in many cases customers will want the benefits of IoT, but need help installing the devices. Even doing something simple like setting up an Amazon Dash ordering button may be beyond the ability of some Best Buy customers. That should create service and Geek Squad sales opportunities for the retailer.
Going forward, Best Buy could even increase this type of service by working with manufacturers to embed Geek Squad service calls into the functionality of more-complicated IoT devices. A smart appliance could in theory order its own repairs before it breaks, and the retailer would be well-positioned to handle some of those service calls.
IoT will spur demand for this company's chips
Keith Noonan (Xilinx): Many chip companies have been seeing strong momentum thanks to IoT, and Xilinx stands out as a leader in a semiconductor segment that could see continued benefits from growing machine-and-sensor connectivity. The chipmaker specializes in field programmable gate arrays (FPGAs) -- semiconductor solutions that can be programmed after manufacturing rather than having a set process.
FPGAs are especially useful at the beginning of technology cycles, when the likelihood of changes and smaller market size make it less feasible to use expensive chips designed for a specific purpose. With the Internet of Things ushering in a range of new technologies that will change and evolve at a rapid pace, there's a good chance that FPGAs will see increased demand. The rollout of the 5G networks needed to facilitate the growing wave of machine-to-machine communication will be one source of momentum for programmable chips, but Xilinx has other opportunities related to IoT.
Intel's acquisition of Xilinx's rival Altera for $16.7 billion in 2015 pointed toward the growing importance of FPGA chips for data centers. Notably, Xilinx is winning influential customers in the space, having recently signed deals with Baidu and Amazon to provide data center solutions. The chipmaker's FPGAs will also be used for IoT-related technologies including machine learning, cloud computing, analytics, and machine vision.
Those looking for returned income have another reason to consider adding Xilinx to their portfolios. The stock currently yields 2.2%, and the company has raised its payout for six years running. With strong growth potential and dividend income to fall back on in the event of market turbulence, Xilinx looks like an IoT stock to buy in 2017.
Daniel Kline has no position in any stocks mentioned. Keith Noonan has no position in any stocks mentioned. Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends AMZN and BIDU. The Motley Fool recommends INTC. The Motley Fool has a disclosure policy.