Investing in Internet of Things Stocks

Updated: April 27, 2020, 3:14 p.m.

Computers and smartphones aren’t the only devices connecting to the internet. Everyday objects such as light bulbs, TVs, major appliances, and even doorbells are increasingly featuring internet connectivity. The Internet of Things (IoT) comprises all of these devices and objects, all communicating with each other and with data centers over the internet.

Investing in IoT is tricky because so many companies are involved in its various aspects, including businesses that make or provide:

  • Consumer devices such as fitness trackers, connected security cameras, and smart speakers.
  • Sensors, chips, and other hardware that serve the industrial and commercial markets.
  • Software platforms for managing IoT devices.
  • Cloud computing services for the processing power needed to churn through all the data IoT devices generate.

Pick any large technology company, and chances are, it’s involved in IoT in some way.

So many companies are focusing on IoT because IoT is a growth business. IDC estimates that total spending on consumer and industrial IoT technology and services will surpass $1 trillion by 2022, growing at a double-digit rate. That’s a massive pie, and it’s expanding quickly.

There are many ways to invest in IoT. Here are five options, ranging from a tried-and-true tech giant to smaller pure-play companies.

IoT Stock Description
Cisco Systems (NASDAQ:CSCO) The leading provider of enterprise networking hardware
Alarm.com (NASDAQ:ALRM) Cloud-based platform for managing connected home and business devices
Dexcom (NASDAQ:DXCM) A maker of glucose monitoring medical devices
Impinj (NASDAQ:PI) A maker of radio-frequency identification (RFID) products
Global X Internet of Things ETF (NASDAQ:SNSR) An exchange-traded fund that includes a wide array of IoT companies

Source: Company websites

1. Cisco Systems

Cisco Systems (NASDAQ:CSCO) is the leading provider of enterprise networking hardware. Because its products form the backbone of the internet, the tech giant benefits from the explosion of internet-enabled devices.

Cisco sells networking hardware designed for handling large numbers of connected devices, including rugged, durable products aimed at industrial applications. On the software side, Cisco provides the Cisco Kinetic platform and other tools for managing IoT data and devices.

Cisco is also one of the largest cybersecurity companies. The company offers hardware, software, and services aimed at securing all networks against threats, including those specifically targeting IoT systems.

Cisco is a low-risk way to invest in IoT. The company is supremely profitable, generating adjusted net income of $13.8 billion on revenue of $51.7 billion in fiscal 2019. Cisco is sensitive to global economic conditions given that its customer base includes many large companies, organizations, and governments, but the stock is a good way to gain exposure to IoT without taking big risks.

2. Alarm.com

While Cisco is worth over $150 billion, cloud software provider Alarm.com (NASDAQ:ALRM) is valued at just $2 billion. Its small size makes it riskier than the tech giant, but the company has plenty of growth potential.

Alarm.com provides a cloud-based software platform for managing a connected home or business. Subscribers use the software to manage internet-enabled devices, including security cameras, lights, locks, thermostats, and a range of other supported products.

Alarm.com partners with service providers to sell its platform to consumers and businesses. The company currently works with over 9,000 service providers and has more than 6.8 million subscribers. Revenue was up 19% in 2019 to $502.4 million, and the company was profitable.

Alarm.com expects the global smart security market to grow to $21 billion by 2022, expanding by 24% annually. With only a small fraction of homes currently using Alarm.com’s platform, the IoT company has a long growth runway.

Did you know?

Total spending on consumer and industrial IoT technology is expected to pass $1 trillion by 2022.

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3. Dexcom

The Internet of Things goes far beyond consumer devices. Dexcom (NASDAQ:DXCM) is focused on diabetes management, specifically on medical devices used for continuous glucose monitoring. The company’s G6 system includes an auto-applicator, a sensor and transmitter, and a touchscreen receiver displaying real-time glucose data. Compatible smartphones and smartwatches can also be used to display data.

The number of people in the U.S. with diagnosed diabetes grew from 1.58 million in 1958 to 23.35 million in 2015, according to data from the Centers for Disease Control. Dexcom estimates that market penetration for continuous glucose monitoring for people on intensive insulin therapy is 35% to 40% for type 1 diabetes and just 15% for type 2 diabetes.

The combination of growing rates of diabetes and the transition to continuous glucose monitoring gives Dexcom plenty of growth opportunities in the coming years. In 2019, Dexcom’s revenue grew 43% to $1.48 billion.

Dexcom is an expensive stock relative to its revenue, valued at more than $25 billion. But for those willing to take on some risk to gain exposure to both IoT and healthcare, it’s a stock to consider.

4. Impinj

Impinj (NASDAQ:PI) is the smallest stock on this list, valued right around $500 million. The company specializes in solutions involving radio-frequency identification, or RFID. Impinj’s RFID tags are used by retailers, manufacturers, and logistics companies to track inventory and assets.

The market for RFID products, including tags, readers, software, and services was worth $11 billion in 2018, according to IDTechEx, and it’s expected to grow to $13.4 billion by 2022. Apparel retail is so far one of the biggest markets by volume for RFID technology, with around 8 billion RFID labels used in 2018 to tag apparel items.

Impinj estimates that just 0.1% of connectable items are connected today. In the long run, trillions of consumable objects, ranging from food packaging to tires, could be tracked using RFID technology. Each RFID endpoint cost just pennies, making the technology economical for a wide array of use cases.

Impinj is a small company, with just $152.8 of revenue in 2019. It has shipped over 30 billion RFID endpoints over its lifetime, and that number could rise substantially in the coming years. Impinj is far from a sure thing as an investment, but it’s a company to watch in the IoT space.

5. Global X Internet of Things ETF

If picking individual stocks isn’t your thing, you can still gain exposure to IoT by investing in the Global X Internet of Things (NASDAQ:SNSR) exchange traded fund. This ETF holds positions in dozens of IoT-related companies; Dexcom represents its largest holding. Others include semiconductor companies that make chips for IoT devices, companies that make the devices themselves, and tech giants such as Cisco and IBM (NYSE:IBM).

Using this ETF to invest in IoT gives you some exposure to riskier stocks that could soar in the coming years while providing enough diversification to protect you if any one stock turns out to be a dud.

Related topics

A long-term growth industry

It’s clear that an ever-increasing quantity of everyday objects will connect to the internet in the coming years. Some will be more gimmicky than anything else; a toaster doesn’t really need a wireless chip. But applications such as home security, tracking assets, and improving the management of chronic diseases will provide plenty of growth opportunities for a wide variety of companies.

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