While definitions will differ, IoT essentially involves inter-connecting the world around us, presumably to make our day-to-day lives safer and more efficient. Imagine cars, homes, and even an entire cities that seamlessly communicate and share information: Welcome to IoT. Industry pundits expect the market for IoT-related solutions to sky-rocket, so we asked three of our Fool contributors which companies they thought would lead the way. Topping the list are Ambarella (NASDAQ: AMBA), Intel (NASDAQ: INTC), and Google (NASDAQ: GOOG) (NASDAQ: GOOGL).
Keith Noonan (Ambarella): Ambarella's stock price has increased more than 1,100% since its October 2012 IPO, and roughly 178% in the last year, but the company's potential to benefit from emerging IoT technologies suggests its impressive growth is far from over. Ambarella is probably most known as the provider of chips for GoPro's action cameras, but the maker of video and image processing semiconductors is well diversified and produces chips for products across a variety of expanding segments.
The Internet of Things is already reshaping the security industry, allowing for data to be transferred seamlessly from surveillance devices to the Internet, enabling live analytics and management through applications, and Ambarella looks to be an ongoing beneficiary of this trend. The rapidly growing commercial IP security camera market accounted for more than half of the company's unit shipments last quarter, but the consumer market for these devices is still relatively small and presents a big growth opportunity down the line.
The strength of Ambarella's low-power consumption, high-performance chips also suggests that it's poised to benefit from increasing demand for wearable security cameras, automobile dash and mirror cameras, UAVs, and action cameras, all of which will offer increased inter-device connectivity and functionality as the Internet of Things unfolds.
Priced at roughly 45 times forward earnings, Ambarella may look expensive when compared to the S&P 500's forward P/E ratio of roughly 17, but the chipmaker's business is still growing at a fast clip. After recording 38.5% growth in its last fiscal years, Ambarella is guiding for sales growth as high as 30% in the current annual term, and it anticipates gross margins will remain strong, between 59% and 62%. With a strong product line that serves growing segments and increasing strength in foreign markets, there's plenty to love about Ambarella.
Bob Ciura (INTC): One of the most exciting new areas to come about in the technology world in the past few years is the "Internet of Things." Mobile, home, and embedded devices could all be connected to the Internet to integrate computing abilities and share data over the cloud.
Intel Corporation is my favorite Internet of Things stock. The company is the largest semiconductor company in the world, meaning it's arguably in the best position to build up a significant IoT business, which it has done. Intel's IoT segment grew revenue by 18% last year and is now a $2 billion business by annual sales. In fact, Intel's IoT division was its fastest-growing business last year by revenue, even outpacing Intel's high-growth data centers business.
Intel's IoT operations span a wide range of industries. The company is developing platforms designed for retail, transportation, and industrial purposes, as well as for connecting devices within buildings and the home. As the company detailed in a December presentation, Intel estimates there are approximately 50 billion devices that could all be connected through the IoT. And since the cost of connectivity has declined in recent years -- the cost of bandwidth has fallen by 40 times in the past decade -- Intel has a major opportunity in front of it.
Tim Brugger (Google): In what is expected to become a nearly $2 trillion market in just the next four years, IoT in general offers a world of opportunity for those companies who get on board early. Within the widespread IoT marketplace, one of the markets expected to lead the way are smart homes, and Google is positioning itself as the undisputed leader.
Smart homes, according to research from Business Insider, will account for 25% of total IoT related revenues this year, equal to about $61 billion. By 2019, smart homes will become a $490 billion business, which is why Google has already gone all in. It was about this time last year that Google acquired smart thermostat, smoke alarm and air quality monitoring manufacturer Nest for a cool $3.2 billion. The Nest acquisition was followed by deals for smart security device manufacturer and Dropcam, and a little-known IoT developer called Revolv.
While Nest and Dropcam got much of the press, it was Google's purchase of Revolv that may prove it's most critical in gaining smart home market share. Revolve solves one of the smart home's biggest challenges -- how to get disparate devices and systems to "talk" to each other.
Recently, Google announced its Nest unit will act as the hub for consumer's entire smart home suite of products and services, and has already inked deals with some of the world's largest appliance and household item manufacturers, all to jump-start its smart home initiative. The market is big, getting bigger, and Google is at the forefront.