Even as old nemeses like Microsoft (NASDAQ:MSFT) and newer competitors like Facebook (NASDAQ:FB) enjoyed stellar year-to-date stock price runs -- Microsoft's share price is up 23%, and Facebook's 35% -- Google (NASDAQ:GOOG) (NASDAQ:GOOGL) stock continues to meander aimlessly, essentially flat for all of 2014.

Google's lack of share price appreciation in 2014 is a bit baffling, in that it continues to perform on both its top and bottom lines at impressive rates, particularly when you consider its market capitalization is nearly $377 billion . When a company the size of Google grows revenues by 20%, as it did last quarter compared to 2013, along with a 14% jump in earnings per share on a non-GAAP basis, you'd think might be enough to light a fire under investors. Nope, nary a whimper. But that could change, as Google is quickly taking a leadership position in a market that's about ready to explode.

The opportunity is big, and getting bigger

Though many consumers struggle to wrap their heads around the somewhat nebulous Internet of Things (IoT), it's real, and it's expected to see explosive growth in the coming years. One area of IoT expected to lead the way is smart homes. A recent study suggests that smart home device sales will enjoy a compound annual growth rate (CAGR) of a whopping 67% over the next five years, reaching nearly 2 billion units by 2019, far out-pacing mobile devices of any kind.

The expectations for smart home-related sales are even more impressive as  measured by potential revenues. According to estimates, connected devices for the home will generate over $61 billion this year, and climb to $490 billion by 2019. As if those heady numbers weren't enough to get fans excited, leading the way will be home energy-related units, like smoke detectors and thermostats -- and that's right in Google's wheelhouse.

Google made clear with its $3.2 billion acquisition earlier this year of smart thermostat and smoke detector manufacturer Nest that it was serious about smart homes. Recent deals to buy security camera provider Dropcam and its latest acquisition Revolv, via Nest, position Google as the clear-cut leader in the burgeoning smart home market. Revolv will help Google solve one of the biggest hurdles to connecting home cameras, detectors, lights, appliances, and all the other devices in consumer's home.

The problem for many early entrants in the smart home race is finding a way for all the devices in a home, regardless of manufacturer, to "talk" to each other. Revolv's solution addresses just that, and is a big step forward for Google's smart home aspirations.

What's in it for Google?
The obvious opportunity for smart home players like Google is clear from sales estimates over the next five years. But Google will also benefit in other ways. The battle for the cloud, much like the battle for smart homes, is growing rapidly. . Microsoft's nice stock price run is due in large part to the strides it's making in cloud revenues, which were up nearly 130% compared to last year. Google is no stranger to cloud solutions, and it stands to reason it will play an integral role connecting homes.

Perhaps even more intriguing for Google is the volume of data smart home devices will provide, data it can utilize to drive digital advertising efforts, far and away its primary source of revenues. Some of the angst investors and industry pundits have felt of late, and a reason for Google's stagnant stock price, is the apparent gains Facebook is making in digital ads, especially mobile. Facebook, like Google, not only amasses huge amounts of user data, its internal algorithms allow it to target ads more effectively than its peer, including Google. .

But what if Google, thanks to its leadership position in the fast-growing smart home market, had access to user information that went well beyond Internet and mobile usage? What time a person gets home, ran out of milk or laundry detergent, or any number of "mundane" household data? The possibilities are endless, and would provide Google with data Facebook could only dream about.

Final Foolish thoughts
Less tangible, but still legitimate, are concerns that Google is losing track of its core businesses. Forays into driverless cars, glasses, even health-related nanotechnologies and "smart" contact lenses from its ultra-secret Project [x] studio, have left more than a few folks scratching their heads. But IoT in general, and smart homes in particular?  While still cutting-edge, it's much easier to see how leading the race for consumers' homes can boost revenues, and ultimately jump-start Google's stock price.

 

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and Microsoft. 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.