Jacob Wolinsky is the founder and CEO of ValueWalk.
The Internet of Things is a fast-growing area of technology that will one day have virtually the entire world connected. For now, it's still in the relatively early stages, so there may be opportunities to invest early in companies that will benefit from the IoT.
So where can you put your money if you want to take a stake in the Internet of Things? It all depends on how you want to invest, which part of the IoT you want to invest in, and where the valuation of each company currently stands relative to the benefits it will receive from growth in the IoT.
First it's important to realize that the Internet of Things has many parts, which means you can play the IoT in the stock market through several avenues. Some investors prefer to invest in companies that make components for devices, while others prefer to invest in software that connects devices to the internet. Still others invest in manufacturers and consumer-driven companies, while some prefer to play the industrial angle of the IoT. Another option is to invest in the platforms that make the Internet of Things possible.
One other thing to think about when it comes to investing in the IoT is whether you want to stick to publicly traded companies or if you want to look for startups by investing in a venture capital fund. The downside of venture capital is that you must be an accredited investor to invest in startups, so that may not be an option that's open to you.
Accredited investors are those with a net worth of at least $1 million, excluding their primary residence, or annual income of at least $200,000 for individuals or $300,000 for couples for the last two years. The definition of an accredited investor is also being expanded to those holding certain professional licenses in the financial industry. This expansion of the definition has been in the works for years, but it only recently was enacted.
Perhaps the most basic place to start with investing in the Internet of Things is with the companies that make the components which make the IoT possible. This category includes some big names like Intel, although there are plenty of lesser known names as well.
Two of these lesser known companies are Skyworks Solutions and Sierra Wireless. Skyworks makes semiconductors that are used in mobile communications systems and radio frequency. It should be noted that Skyworks stock has increased in value significantly this year. Sierra Wireless manufactures components that connect machines to each other over cellular networks.
Marvell Technology Group is another semiconductor company with exposure to the Internet of Things, although it also makes the Andromeda platform and offers other angles for investing in the IoT. Arm Holdings and Impinj also make components. Arm makes semiconductors, while Impinj makes radio frequency identification devices (RFID) and software.
Some examples of software and services companies that support the Internet of Things are JFrog and CalAmp. JFrog just held its initial public offering this year, so it is still humming along momentum from that. The company provides DevOpps solutions that serve as the backbone for IoT apps and services.
CalAmp is an interesting play because the software it provides offers multiple exposures to the Internet of Things. The company provides cloud services, data intelligence and telematics products. It also offers exposure to connected vehicles and the industrial Internet of Things.
Bsquare is another option if you're looking for software exposure to the IoT, and it also offers multiple exposures. The company states that it designs, builds and operates "intelligent devices and systems at scale" for its customers. Bsquare supports manufacturers and enterprises by offering professional development services. Its main product is B2IQ, which is a collection of edge-to-cloud solutions and system recovery tools that target the industrial internet of things.
Alarm.com and PTC both offer platforms for the Internet of Things, although the nature of their platforms is entirely different. PTC is a global technology company that serves as an industrial play as well as a platform play. Its ThingWorx platform serves as a design and runtime engine for IoT applications. ThingWorx provides a library of more than 150 different device drivers and internet protocols to connect industrial machines to the platform.
Alarm.com differs from PTC because it provides an IoT platform for consumers rather than industry. The company's platform does more than just serve as an alarm system. It also supports home automation while providing monitoring of systems. Alarm.com's Smart Signal product won the IoT Evolution Product of the Year Award in 2019. Smart Signal is a mobile app that reduces false alarms and expedites emergency response to homes. The company's home automation platform enables users to control appliances while on the go, which can come in handy if you think you've forgotten to turn off the stove or another major appliance before leaving home.
If you're looking for a more well-known platform play, you might consider Amazon, although give the run-up in its stock, it may be overvalued at current levels. Amazon Web Services offers its IoT Core platform, a managed cloud service that enables connected devices to interact with cloud applications and other devices.
One good thing about Amazon is that it is more than a platform play when it comes to the Internet of Things. It also sells consumer devices like its Echo smart speaks, which are equipped with its Alexa digital assistant. Alexa also provides exposure to the software side of the IoT, although it rather straddles the line between platform and software because it serves as a consumer interface for the platform.
Although Amazon is perhaps better known for its devices and ecommerce of course, it actually receives most of its profits from its cloud computing business. Amazon Web Services also has industrial applications because it provides connectivity to some companies' manufacturing infrastructures. For example, Volkswagen selected Amazon Web Services to connect more than 100 of its factories to the cloud to "increase plant efficiency and uptime, improve production flexibility and increase vehicle quality."
For exposure to the industrial Internet of Things, we dive into a mix of companies that are household names and some that aren't. The interesting thing about these industrial names is that some of them may not seem like IoT plays at first glance.
For example, Honeywell has been building a name for itself in the Internet of Things industry. The company describes the Industrial Internet of Things as a "network of networks that uses the internet to connect people, processes and assets enabling a new way to optimize business results." By connecting industrial infrastructure, the company's platform also provides analytics, data management and onsite control.
Another household name that you might not think would be connected to the IoT is General Electric, which is both a platform and industrial play with software exposure as well. The company's Predix Platform is a distributed application platform designed to capture and analyze the volume, velocity and variety of machine data in an "industrial-strength cloud environment."
GE Digital describes its software as connecting "streams of machine data to powerful analytics and people, providing industrial companies with valuable insights to manage assets and operations more efficiently."
One part of the Internet of Things that gets more attention on its own than it does as part of the IoT is connected vehicles. There is a wide array of companies that fall into this category, ranging from well-known companies like Tesla and other automakers to lesser known names like Mobileye, which is now part of Intel. Mobileye makes advanced driver-assistance systems and sensors to support autonomous vehicles.
Another connected car company is TeleNav, which provides maps, navigation and other connected car solutions. The company offers many services and apps designed for navigation and similar activities, but its TeleNav Asset Tracker and TeleNav Vehicle Tracker are designed to help companies track their assets and vehicles, respectively. The company also offers infotainment systems that are integrated with the cloud to provide services inside vehicles.
Other connected vehicle technologies include predictive maintenance systems like those offered by Progress Software.
The consumer device side of the IoT is filled with some very big names, including Alphabet and Apple. Alphabet has several devices that connect to the internet, starting with its Google Home smart speakers. Alphabet also sells the Nest thermometer, which may be one of the best examples of smart phone technology. The Nest thermometer allows users to control their thermostat while they're away from home using an app on their smartphone.
Apple is not a pure Internet of Things play because of the iPhone and the many other products it sells, but it is important to mention, nonetheless. The company's HomeKit provides a platform for smart home devices to connect to, and its HomePod smart speakers are a competitor for Amazon's Echo devices and the Google Home smart speakers.
If your head is spinning with the many stocks that provide exposure to the Internet of Things, you might want to consider simplifying things a bit by purchasing an exchange-traded fund. The Global X Internet of Things ETF is arguably the most popular ETF for those who want exposure to the IoT.
The Global X Internet of Things ETF focuses on semiconductor companies, sensor makers, integrated products and solutions, and apps that serve smart grides, smart homes, connected cars, and the industrial internet of things. Among the top 10 holdings in the ETF are Skyworks Solutions, STMicroelectronics, Garmin, Dexcom, Silicon Laboratories, Advantech, ADT and Xiaomi.
In all, the ETF holds 47 different stocks. More than half of its assets are held in the information technology sector, while nearly 30% are held in industrials. The U.S. makes up the largest chunk of the ETF's holdings.
Beyond the Global X ETF, there are some other ETFs that are related to the Internet of Things, although they do not provide as much of a pure play option for the IoT. For example, the VanEck Semiconductor ETF invests in chip makers, many of which do offer products aimed at the IoT market. The ETF is limited to the semiconductor market though, so it does not provide a diversified holding of IoT-exposed companies. You will also be missing out on vast chunks of the Internet of Things if you're wanting to invest in it more broadly.
Two other options are the First Trust Technology AlphaDEX Fund, which invests in tech stocks, and the PowerShares Cleantech Portfolio ETF. The First Trust ETF provides exposure to a broad range of tech stocks, which means it includes many companies that don't have any exposure to the Internet of Things. In fact, of the ETF's top 10 holdings, there are very few major IoT names. Its top 10 holdings as of October 12 include Twilio, Cloudflare, Datadog, Globant, HubSpot, Fastly, Micron Technologies (which has also attracted big-name investors like Mohnish Pabrai), Apple, DocuSign and Xerox Holdings.
The PowerShares Cleantech ETF is even less of an IoT play than the other two, but it does deserve a mention, especially for those who are interested in investing in sustainable energy and other forms of clean technology. The ETF's top holdings are Gamesa, ABB, Schneider Electric, Ansys, Vestas, Autodesk, Intertek, Novozymes, Trimble Navigation and Kingspan.
No matter which route you take to invest in the Internet of Things, you should always take a diversified approach. It wouldn't be a bad idea to work with a financial advisor who specializes in selecting tech investments for portfolios. They can help you make sure that your portfolio is wholly diversified. You should also include some non-IoT stocks as well so that your portfolio isn't loaded entirely into technology.
If you are investing in the Internet of Things, you should also consider diversifying within the IoT universe. There are plenty of stocks to choose from, and not all of them will be a good fit for every investor. That's why options like the Global X ETF can make it easier to invest in the IoT while ensuring that you take a broad picture of the landscape for your portfolio.
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