There are plenty of ways for personal investors to tap into the Internet of Things (IoT). Investors have their choice of chipmakers, hardware makers, platform companies, and software companies. But what if you're looking to base your investment decision not on whether a company makes microcontrollers or analytics software, but rather on the level of risk you're willing to accept?
Whether you're all-in with the Internet of Things, are looking to take a balanced approach, or are very cautious about the IoT's potential, here are three different angles you can take to invest in this growing tech trend.
Pure play all the way
For investors who are looking for exposure to the Internet of Things and little else, take a look at Sierra Wireless (NASDAQ:SWIR). The company makes wireless embedded modules for machine-to-machine devices (M2M), wireless gateways, and software to manage Internet of Things connections. ABI Research says Sierra is the top M2M company by revenue for three years running.
You can find the company's technology in everything from Tesla's high-end electric cars, to smart city lights in London, to Nespresso's coffee makers. Sierra makes about 85% of its revenue from its OEM Solutions business, which includes wireless modules that connect devices and things to a carrier's cellular networks.
At a market cap of just $1.1 billion and nearly all of its technology focused on the IoT, Sierra isn't exactly for investors with weak stomachs. The company's stock is up nearly 58% over the past year, but that's come with some serious volatility. Sierra still has a lot of potential as a leading M2M company, but it needs to balance revenue between its OEM Solutions and Enterprise Solutions (read: software) much better.
Hedge your bets
For investors who don't want 100% exposure to the Internet of Things, but still want a company that has a big opportunity in the space, then Skyworks Solutions (NASDAQ:SWKS) may be a better choice.
Skyworks Solutions makes analog and mixed signal semiconductors for Apple, Samsung, and others. The company's enjoyed a lot of success recently, with its stock up 170% over the past 12 months and revenue up 59% year-over-year in the most recent quarter.
What's surprising -- and a big opportunity for investors -- is that Skyworks is just entering the IoT market. On a recent earnings call, CEO David Aldrich said future connected devices will, "require high levels of integration and will need customized solutions produced in massive scale and attractive cost points. All of these attributes play directly into Skyworks' core strengths. In this way, Skyworks is a conduit into the Internet of Things." He went on to say that the IoT is one of four major revenue drivers for the company this year.
Skyworks Solutions has room for more IoT growth while still holding on to other solid revenue streams as well. Skyworks just needs to watch out for pricing pressures from original equipment manufacturers and for competitors that could swoop in and take away business -- namely Qualcomm.
Slow and steady
This next stock should appeal to you if you are intrigued by the Internet of Things but have some serious qualms with directly investing in it. It may come as a surprise that one of the biggest worldwide conglomerates, General Electric (NYSE:GE), is investing a lot of time and energy in the Internet of Things.
The company currently monitors nearly 10 million sensors in its equipment and uses its own Predix software to monitor and analyze the data from those connected things. GE says just a 1% increase in efficiency from the connected "Industrial Internet" will result in $90 billion in savings for the oil and gas industry over the next 15 years and $63 billion for the health care industry.
In 2014, GE made just $1.4 billion from its Industrial Internet software, but the CEO Jeffrey Immelt says that should rise to $5 billion by 2017. For a company whose revenue was $148.6 billion in 2014, that's not a lot of IoT revenue, but the company is committed to the Internet of Things, and it may be one of the best bets for investors who want in on IoT without being over exposed to it.
Which investor are you?
I tried to pick three different companies here, each with a different level of exposure to the Internet of Things, but obviously there are plenty more. Of course, at the end of the day the best IoT stock for you is going to be one that fits into your own personal risk level and has great long term potential.
One great aspect about the Internet of Things is that it touches on so many industries and has the potential to generate nearly $19 trillion in cost savings and revenue over the next decade, according to Cisco. No matter what type of investor you are, that's a hard proposition to pass up.