Learn all about the Internet of Things and how you could profit from it in your portfolio.
This article was updated on March 9, 2017, and originally published January 14, 2016.
The Internet of Things (or IoT) can be a particularly precarious place to invest. The IoT is still in early stages, which leaves plenty of room for volatility. But despite this, IoT's potential is too massive to ignore. Cisco Systems estimates that by 2020, there will be 50 billion things connected to the Internet, everything from cows to computers.
All of those connections have the potential to fuel a lot of growth in the coming years, from established tech companies and IoT pure plays alike. But jumping into IoT stocks can feel more like a leap of faith than a sound investing decision. To help you determine which stocks have the best IoT potential, here are three companies that are making big strides right now and could have huge payoffs later.
Most investors, and gamers, know of NVIDIA's (NASDAQ:NVDA) line of GeForce graphics processors and its Tegra line of mobile processors. But the company has been expanding its technological expertise to include software for autonomous vehicles as well.
At the 2016 Consumer Electronics Show (CES), NVIDIA unveiled its Drive PX 2 platform, the second iteration of its autonomous driving system. The updated platform is 10 times faster than the previous version (an important detail in the land of real-time autonomous-driving decision-making), and not too long ago Tesla revealed that it is using some of NVIDIA's self-driving technologies for its semi-autonomous Autopilot system.
Autonomous vehicles will be a huge part of the Internet of Things, with an expected $42 billion market value by 2025. Of course, NVIDIA isn't the only one in the space. Google is already a leader in autonomous driving (and just spun out its efforts into a separate company called Waymo), and Qualcomm's purchase of automotive semiconductor leader NXP Semiconductors will bring even more competition.
But NVIDIA's head start in autonomous-driving systems, and the fact that the technology is already used by 80 different automakers and Tier 1 auto suppliers, could provide the company with just enough of a lead to make big gains in the space.
I like writing about Amazon's (NASDAQ:AMZN) IoT potential because for most consumers (and even investors), Amazon doesn't immediately come to mind as an Internet of Things company. But recently Amazon has made a series of calculated steps that have moved the company deeper into the IoT space.
Here are just a few ways Amazon's making a name in the IoT market:
- The company launched the Dash Replenishment Service (DRS) in 2015, which allows companies to build an automatic ordering system into appliances. Whirlpool was the first company to debut a DRS appliance, a washing machine that sends a mobile notification to users when laundry detergent is low and can automatically order it through Amazon's website.
- Amazon's Echo speaker allows users to control smart home systems via voice commands and taps into Amazon's cloud-based voice assistant, Alexa, to answer questions, set alarms, play music, access traffic reports, and more.
- Alexa is now open to third-party developers who want to integrate the voice-activated system into their own devices as well. This move gives Amazon more opportunities to sell its cloud services to companies.
- Most recently, Amazon launched AWS IoT, a cloud platform for Internet of Things devices that, the company says, "lets connected devices easily and securely interact with cloud applications and other devices."
I think Amazon's just getting started in the IoT space, and it's likely that we'll continue to see more expansion of the company's Internet of Things pursuits.
3. General Electric
The 125-year-old conglomerate General Electric (NYSE:GE) may not seem like a likely Internet of Things investment, but there are plenty of reasons investors should give it a hard look.
The company has developed its own software for industrial equipment, called Predix, and expects to generate $15 billion from its digital business by 2020. GE's CEO, Jeff Immelt, has said that the company will continue to build out software to manage industrial equipment connections and that GE will become a top 10 software company in the next few years.
While the tech and consumer goods sectors are poised to benefit from IoT, much of the growth will come from the industrial sector -- and that gives GE a huge advantage. The company believes the Industrial Internet could add up to $15 trillion to global GDP over the next 20 years, and GE's setting itself up to grow along with that through its Industrial Internet software.
Of course, there are plenty of other companies making big bets on the Internet of Things, but these three companies are making huge strides right now, and could have big payoffs down the road.
Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Nvidia, Qualcomm, and Tesla. The Motley Fool owns shares of General Electric. The Motley Fool recommends Cisco Systems and NXP Semiconductors. The Motley Fool has a disclosure policy.