General Electric Company’s Predix has the Power to Keep GE Stock a Buy

Predix is one of General Electric's biggest and most underappreciated assets

By James Brumley, InvestorPlace Feature Writer

Two weeks ago, yours truly here penned an article calling GE stock a good long-term buy based on a new, all-encompassing piece of software from General Electric Company (GE). Called Predix, the software — the platform, to be more accurate — stood to usher in the long-touted-but-not-yet-actually-seen “connected” city… one of the several benefits of the Internet of Things (IoT) movement.

General Electric Company's Predix has the Power to Keep GE Stock a BuyWhile the write-up and bullish call on GE stock were well-received, I get the feeling (as I feared might be the case then) the premise of Predix and what it could do was so deep and broad, it was almost too much for investors to digest. Maybe it was even too ambitious to even believe it would ever catch on.

Well, as it turns out, it is catching on. Tianjin, China and General Electric are officially teaming up to build China’s first so-called “smart city,” one that cost-effectively operates all of its public lighting using the aforementioned Predix platform.

At the very least it’s a way of understanding what Predix can do, but more plausibly, it’s the shape of things to come all over the world.

What’s Predix?

As a refresher, General Electric describes Predix as “the foundation for all of GE’s Industrial Internet applications, providing powerful, consistent, secure, and scalable support for the solutions you rely on to optimize your business.”

It’s an intimidatingly broad explanation, but not an inaccurate one. Indeed, Predix solves one of the key reasons we aren’t racing to the Internet of Things era … business and governments want to do it, but they don’t really know how to.

And to its credit, some businesses and technology companies are getting on board. As of three weeks ago, 15 businesses has already begun utilizing Predix as a means of optimizing their operations by linking every aspect of their business into one central platform. Better still, outfits like Cisco Systems, Inc. (CSCO) and CapGemini were beginning to support and develop products for Predix.

When a potential competitor ends up supporting the product, then General Electric has clearly created something compelling.

Lighting Tianjin Up

It’s only a fraction of what Predix can do, but owners of GE stock investors have to like the fact that a city in China is not only validating Predix, but demonstrates some of what it can do. The project will involve the installation of GE’s intelligent LED lighting systems, which will then be plugged into the Predix platform so they can be controlled for maximum efficiency.

Broadly speaking, LED lights cost about 40% less to power than traditional lighting solutions. Although they cost more on the front end, the payback period on the purchase comes pretty early on in their multiyear lifespans.

The cost benefit is ever greater when city managers can manually operate the city’s lights, rather than rely on timers and sensors to turn them on and off.

It’s not the last such smart city General Electric plans to establish in China either. The company also announced it’s building a center in Shanghai that will serve as a base of smart-city operations in China, and is also supporting a Chinese “Makerspace,” where home-grown public-service innovations can be developed.

It’s a move that perfectly positions GE to be the hub of China’s next-generation energy-related technologies, which oh-by-the-way makes it much easier to sell its goods to that market.

Bottom Line for GE Stock

As validating as Tianjin’s use of Predix is, most consumers still don’t understand just how one platform can be so overarching. This is another step forward in that journey, however, and the market will get there eventually.

In the meantime though, current and would-be owners of GE stock can wrap their heads around a finite number: The Internet of Things market generated $330 billion worth of revenue last year, and $197 billion of it was driven by IoT software. The entire Internet of Things market is expected to be worth more than $400 billion by 2020.

Predix could end up being the centerpiece of that market’s growth, making GE stock a very compelling (even if under-appreciated right now) play on IoT.

Tianjin wouldn’t roll the dice if it wasn’t sure General Electric and Predix could do the job.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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