The farming sector might not be everyone's first choice when looking for stocks benefiting from disruptive technology, but don't tell that to agriculture equipment manufacturers. The emergence of so-called "precision agriculture" is one of the big growth stories of the Internet-of-Things (IoT) era.

Let's take a look at what's going on with the convergence of tech and agriculture and how investors can profit from it.

A big deal in the precision agriculture sector

Precision agriculture, or precision ag, uses real-time data points (gathered from embedded web-enabled devices) to help farmers make the right decisions over everything from preparing the soil to planting seeds, nurturing, and ultimately harvesting. It's a technology at the heart of the reason why agriculture and construction equipment manufacturer CNH Industrial (NYSE:CNHI) recently agreed on a deal to buy Raven Industries (NASDAQ:RAVN) for $2.1 billion.

A farmer standing out in a field holds up a computer display with bar charts and fever lines showing on it and farming-related symbols float in midair in front of him.

Image source: Getty Images.

CNH CEO Scott Wine said the acquisition "emphasizes our commitment to enhance our precision farming portfolio and aligns with our digital transformation strategy." However, the applied technology (precision ag) business only generated $26.5 million worth of the $46.7 million segment income in the 12 months ended on Jan. 31.

Raven also has engineered films (polymer films and sheets) and aerostar (stratospheric balloons) businesses which CNH plans to make "strategic reviews" of. Don't be surprised if the reviews result in an intent to dispose of the businesses. As such, the focus of the deal is clearly on Raven's precision ag business, and CNH is willing to make a $2.1 billion purchase to acquire a business with just $26.6 million in income in fiscal 2020.

A high growth market

CNH's management believes the precision ag market will expand fourfold as precision ag adoption rates grow from between 10% and 40% of equipment to closer to 100% over time. In that context, the deal is essential for CNH to better compete with the early leader in precision ag, Deere & Company (NYSE:DE).

Deere's precision ag solutions are sold with its equipment, so it's not easy to get an exact fix on them. However, it's highly likely that their addition is margin-enhancive and adds significantly to revenue growth. For example, Deere's management expects its production and precision ag business segment net sales to grow by 25% to 30% in 2021, with price realization responsible for a 7% increase alone. Meanwhile, the production and precision ag segment operating margin is expected to increase between 20% and 21% from 15.2% in 2020. It's hard to think that precision ag isn't a significant driver of revenue and earnings for Deere.

Deere's plans for precision ag are deeply integrated into its overall strategy to help farmers maximize productivity. For example, ExactApply helps control spraying while ExactRate precisely monitors and controls the application of fertilizer. AutoPath uses data gathered from the "first pass" to produce highly accurate guidelines for planting, spraying, and harvesting.

A harvester drives along a row in a field, harvesting a crop as imagery suggests that the harvester is sending out electronic signals to map its route using precision agriculture software.

Image source: Getty Images.

Deere even has robotics technology (Blue River) that uses computer vision to differentiate weeds and crops to spray herbicide on one and fertilizer on the other. Meanwhile, the Harvest Profit business acquired in late 2020 helps farmers predict and gauge profitability on a field-by-field basis. Put all together, Deere's solutions are revolutionizing the productivity of farming.

Positioning technology gives Trimble a path into agriculture

Industrial technology company Trimble (NASDAQ:TRMB) specializes in positioning hardware and software. Its roots are in positioning technology for the geospatial industry (surveying and mapping). Still, these days its major end markets also include construction (providing precise positioning points for contractors), transportation (enabling real-time fleet management), and agriculture.

Trimble doesn't give sole exposure to the precision agriculture sector, but it is a pure play on positioning technology across various industries. That's also why it's the largest holding in ARK Invest CEO Cathie Wood's ARK Space Exploration and Innovation ETF.

The growth of data analytics and applications will enable further integration of Trimble's solutions into working activities across a range of industries, and that spells a lot of long-term growth for the company. 

Looking ahead

The Raven Industries acquisition is a $2.1 billion confirmation that the precision ag revolution is real and that should provide support to the investment theses at Deere and Trimble. In a sense, CNH is playing catch-up with Deere, but given the growth potential in the market, there should be room for all these companies to grow precision ag earnings for many years to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.