Learn all about the Internet of Things and how you could profit from it in your portfolio.
This article was updated on Feb. 27, 2018, 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 end of 2017, the company unveiled its latest supercomputer, called Drive PX Pegasus, which is capable of bringing Level 5 autonomous vehicles to the roads. About 225 companies are already developing semi-autonomous vehicle systems on the Drive PX platform and NVIDIA says that 25 companies are using it to create fully autonomous robotaxis over the next several years.
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. Alphabet's Waymo is already a leader in autonomous driving and GM, Tesla, Ford, and many other companies are racing toward the technology as well.
But NVIDIA's head start in autonomous-driving systems, and the fact that the technology is already used by so many companies could provide NVIDIA 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's Echo speakers allow users to control smart home systems via voice commands and tap into Amazon's cloud-based voice assistant, Alexa, to answer questions, set alarms, play music, access traffic reports, and more. Amazon already has 70% of the smart speaker market and RBC Capital estimates that the Echo could add $10 billion to Amazon's top line by 2020.
- Alexa is 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 get its smart assistant into other IoT devices.
- The company also offers IoT services, like data analytics, through its Amazon Web Services (AWS) cloud computing service. Amazon already has 40% of the cloud computing market, which should help encourage IoT companies and developers to tap into the company's IoT services.
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. Skyworks Solutions
Skyworks Solutions (NASDAQ:SWKS) makes chips that are used primarily for mobile devices. Apple is one of the company's biggest customers, but Skyworks Solutions is also moving quickly into the IoT chip space as well. In the fourth-quarter 2017, Skyworks brought in about 26% of its revenue from its "broad market" segment, which includes sales of IoT chips.
Skyworks' biggest IoT opportunity is in selling connectivity chips for vehicles (for collision avoidance), but also includes chips for connected homes, wearable tech devices, and infrastructure. The company estimates that by 2025 there will be 75 billion devices connected to cellular networks and that Skyworks has the potential to be a key part of this growth.
The chipmaker expects the coming wave of 5G wireless to be a "key enabler to a massive rollout of IoT" over the next few years. The benefit will come for Skyworks as device makers and IoT companies upgrade their hardware to accommodate the new wireless standard.
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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Ford, Nvidia, Skyworks Solutions, and Tesla. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Cisco Systems and NXP Semiconductors. The Motley Fool has a disclosure policy.