The Internet of Things (IoT) is expected to drive billions of dollars of chip sales. Market research company IC Insights forecasts that the IoT semiconductor market will exceed $31 billion in revenue by 2020, up from $18.3 billion last year.

Not surprisingly, Sierra Wireless (NASDAQ:SWIR) has been in fine form on the stock market over the past year. Shares of the pure-play IoT specialist have shot up more than 27% in the last year thanks to its consistent growth as well as a market-leading share of 32% in IoT connectivity modules. On the other hand, chipmaker Skyworks Solutions (NASDAQ:SWKS) has been trying to make headway into the IoT market as its recent product introductions suggest. And its stock is up 28% over the past year.

But will Skyworks prove to be a better IoT bet than Sierra Wireless?

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The case for Skyworks Solutions

Skyworks Solutions is aggressively trying to diversify its business as it currently relies heavily on Apple for revenue, so it has decided to try its hand in the IoT space. This is a logical progression for Skyworks as its radio frequency (RF) chips are used by smartphone makers to send and receive wireless data across various frequencies so that they can connect to a variety of networks.

IoT devices will also need a range of RF chips, such as amplifiers and power management modules, to boost signal strength and manage the system's power requirements. Skyworks knows this, which is why it has rolled out a comprehensive portfolio of RF chips aimed at different verticals of the IoT market such as automotive, connected homes, industrial, and others.

The good news is that its IoT-centric products have already started gaining acceptance. Skyworks recently revealed that it has been selected by Cisco and Bosch to supply connectivity modules for smart-lighting and home-security systems, respectively. Both these companies are big names in the smart-home market (including lighting and security) that's expected to grow at an annual pace of 13.6% through 2023.

Additionally, automaker Hyundai has started sourcing in-vehicle telematics systems from Skyworks. This is another big market that's expected to clock an annual growth rate of over 27% through 2021. Therefore, Skyworks has started making good progress in the IoT space, and this helped it increase its non-smartphone revenue by 22% during the last-reported quarter to $256 million.

Looking ahead, Skyworks' IoT-related revenue could spike further thanks to its recently released RF diversity receive modules, which enable high-speed connectivity across a vast collection of IoT devices on any network in any region across the globe. Not surprisingly, this solution has been selected by leading machine-to-machine (M2M) module suppliers, including Sierra Wireless.

This could be a big deal for Skyworks as Sierra leads this lucrative space that's estimated to grow at a CAGR (compounded annual growth rate) of 34% over the next four years.

The case for Sierra Wireless

Sierra Wireless has stepped on the gas in recent quarters after its top line stagnated in 2016. Its revenue growth is back on track, as evident from the latest quarterly report, and there is potential for stronger growth in the long run thanks to its acquisition strategy.

Sierra recently announced a couple of acquisitions that should be accretive to its revenue and margins. The Numerex acquisition, for example, will expand the company's services business and strengthen its presence in the device-to-cloud connectivity market that's set to expand rapidly as more devices connect to the internet.

Wall Street, meanwhile, is excited about Sierra's Volkswagen contract that could give it a major boost next year.

The company's Volkswagen contract will go into effect from the second half of 2018. Sierra CEO Jason Cohenour has made it clear that the German carmaker will be a bulk buyer of its connectivity chips as they will be used to power apps and services using Volkswagen's Car-Net platform.

Moreover, Volkswagen will be using Sierra chips in two of its automotive programs. This means that Sierra is poised to supply modules for both premium and mass-market Volkswagen models, which could be a big deal for the chipmaker as the German auto giant sold over 10 million vehicles last year.

The verdict

Both Skyworks Solutions and Sierra Wireless are pursuing fast-growing opportunities within the IoT market that's driving revenue growth at both companies. But there's a clear winner between the two from an investing standpoint.

SWIR PE Ratio (TTM) Chart

SWIR PE Ratio (TTM) data by YCharts

Skyworks Solutions is cheaper than Sierra Wireless from a price-to-earnings perspective, and it is growing at a superior pace as well. Last quarter, Skyworks' revenue increased 18% year over year, substantially higher than the 12.8% jump delivered by Sierra. Moreover, Skyworks gives investors the option of taking advantage of the smartphone market as well, making it a better bet than Sierra Wireless.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Sierra Wireless, and Skyworks Solutions. The Motley Fool has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and short January 2018 $105 calls on Skyworks Solutions. The Motley Fool recommends Cisco Systems. The Motley Fool has a disclosure policy.