You may not realize it now, but the Internet of Things is about to get big — really big!
This year, Gartner estimates there will be 4.9 billion things connected to the Internet across consumer (3 billion) and business (1.9 billion) categories.
This will represent growth of 30% as three quarters of the IoT market makers have IoT systems deployed. But by 2020, those things will grow to 20.8 billion with 13.5 billion in the consumer category and 7.3 billion for business.
In terms of revenue creation, we’re talking $3 trillion as the industry grows from just $1.2 trillion this year, with spending split nearly 50/50 across the business and consumer segments.
As a result, there’s no question that the IoT will be the biggest growth driver in technology, as essentially everything and anything gets connected to the mobile and broadband networks. Therefore, a lot of revenue and profits will be created as the number of things grow four-fold while the revenue nearly triples.
So let’s look at five of the best IoT stocks to buy now before growth really kicks into high gear.
Internet of Things Stocks to Buy: Apple (AAPL)
It seems almost too easy to say Apple (AAPL), but at the end of the day, there really is no better option than the world’s most valuable company.
First and foremost, AAPL is the cheapest of Big Tech stocks at just six times free cash flow minus cash, and because of big buybacks and the almost inevitable reality of multiple appreciation, AAPL will eventually top $200 from its current business model.
But beyond Apple’s current business model lies the only tech company with complete ownership of both its own software and hardware, two crucial elements for the Internet of Things to succeed.
That said, Apple already has more than 800 million users with credit card information stored on its App Store, so its place on the consumer side is pretty much locked down. The bigger opportunity lies in the enterprise where Apple’s partnership with IBM (IBM) to combine hardware, software and real-time business processes draws $25 billion in annual revenue.
When you put all these things together, you have a near-guarantee that Apple will be a major player in the IoT.
Internet of Things Stocks to Buy: IBM (IBM)
As previously mentioned, IBM already has its partnership with Apple to solidify its place with enterprise customers. In addition, IBM has very quietly positioned itself to be a leader in data analytics.
This is a huge deal, because after all, Big Data technology and services is expected to become a $40 billion market by 2018 as connected things collect data and companies like IBM analyze and present that data for improved business processes.
Aside from IBM’s partnerships with AAPL, it also formed alliances with Medtronic (MDT) and Johnson & Johnson (JNJ), among others, where it will analyze data from medical devices to improve surgical procedures and help treat various diseases.
To assist with these initiatives, IBM acquired several companies like Phytel and Explorys to provide it with the appropriate analytic capabilities and a database of 315 billion data points for reference. This positions IBM well in the healthcare analytics market, a projected $20 billion market by 2020, and a key industry to drive growth in the IoT.
However, this alone does not illustrate IBM’s scale in the IoT, as it has also completed acquisitions of assets like The Weather Channel that also collect billions of data points and is instrumental in important sectors like aerospace, insurance and energy among others.
The bottom line is that IBM has a big opportunity in data analytics and the Internet of Things.
Internet of Things Stocks to Buy: Alphabet (GOOG, GOOGL)
This includes Android, the world’s most popular operating system. Much like Apple, GOOG has proven itself successful with operating systems beyond Android, such as Chrome. Chances are GOOG will be crucial in developing the operating systems that lie at the epicenter of the Internet of Things, along with Apple.
Furthermore, Alphabet has its hand in everything from self-driving cars to being a wireless service provider to ultra-high-speed Internet with Google Fiber.
These are all initiatives, along with hardware like Nexus and Google Glass, that paint a very pretty picture for Alphabet’s future place in the Internet of Things.
Internet of Things Stocks to Buy: AT&T (T) and Verizon (VZ)
However, in order for all those devices to carry out their function, whether it be smart shoes or street lights that sense vehicles to prevent traffic jams, all of those things must connect to the Internet to communicate and work efficiently. This reality is what makes AT&T (T) and Verizon (VZ) so appealing.
According to Cisco, mobile data consumption will grow at a compound annualized rate of 57% through 2019. This gives wireless companies like AT&T and Verizon a great shot to collect far higher revenue as businesses and consumers are forced into larger data plans.
In essence, Verizon and AT&T are the middlemen of the IoT, connecting “things” to the Internet. What separates these two companies from the other two wireless service providers is scale, network performance and spectrum, along with additional service offerings like broadband Internet and connected cars.
Lastly, both companies have made big moves in video. Verizon acquired AOL and worked tirelessly to develop over-the-top viewing platform Go90. Not only will it put Verizon in the driver’s seat to deliver ads through video, but to also sell ads to “things” on its network. Meanwhile, AT&T’s strategy is a bit different, acquiring DirecTV to bolster its video reach.
While video may seem like a mature and crowded space, investors should keep in mind that mobile video viewing is expected to be the biggest consumer of data through 2019, with a compound annualized growth rate of 66%. Therefore, it is no wonder that Verizon and AT&T have pursued video so aggressively.
All things considered, the two carriers may have different strategies, but one thing is for certain: Both have a great opportunity to capitalize on the Internet of Things.
As of this writing, Brian Nichols was long AAPL.