The Internet of Things (IoT) is not longer some strange, unknowable concept. Instead it has integrated itself almost seamlessly into consumer products.
Headphones, smartwatches, smart speakers, and security systems all need short-range radios, with standards like Bluetooth, WiFi and Zigbee. Connecting devices into systems first requires devices to connect. Companies making radio chips are currently the big IoT winners.
That’s why companies like Skyworks Solutions Inc. (NASDAQ:SWKS) and Qorvo Inc. (NASDAQ:QRVO) remain relevant. Qorvo stock is up about 70% since buying Greenpeak Technologies, an IoT solution provider, in 2016.
It’s also why, in discussing the IoT, the first company that comes to mind is Qualcomm, Inc. (NASDAQ:QCOM). Radios and radio technology are basic to all IoT applications, and the continuing soap opera that is its effort to close on NXP Semiconductors NV (NASDAQ:NXPI) is the key. The deal would add micro-controllers and automotive chips to its radio product line.
Normalizing the Internet of Things
As the Internet of Things moves from concept to working reality, those “hockey stick” graphs showing continuing hyper growth are being replaced by more realistic estimates.
A recent McKinsey report on the space shows growth rates under 20% for most IoT niches, as the easy money of point solutions gives way to larger systems requiring the use of major cloud platforms.
Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL) are fighting for the consumer market, with Amazon voice and Google sensor platforms seeking device support to build security, maintenance and metering solutions.
The race among the platforms revolves around the movement to support, then buy, software start-ups that use sensors and radios to produce services people will pay for. That’s why Amazon now has an IoT platform and why Alphabet brought Nest back into its fold.
Investors Are Buying Big
The sheer size of the IoT market has most investors being pushed toward the major suppliers of radios and platforms, and away from software solutions, which is the hot market for startups. Turning data into services is how the platforms will be paid, so those who follow the market are expecting platforms to be buying software that proves itself with both hands.
Scale is also necessary in the radio market. You need to be big enough to help define new standards and then implement them quickly. Systems like Bluetooth low energy can result in battery-operated devices that run for years on a charge, as opposed to just a few days for current FitBit Inc (NYSE:FIT) smartwatches.
Because the technology changes so rapidly, high-end consumer devices like the Apple Inc. (NASDAQ:AAPL) Watch can quickly become obsolete, unable to run the latest version of the operating system. This makes it difficult to get a premium price for such control devices, giving an advantage to lower-cost Android systems.
The Bottom Line on Investing in the Internet of Things
You may not think you’re invested in the Internet of Things, but you are.
Whether you own an industrial stock like General Electric Company (NYSE:GE) or a consumer appliance outfit like Whirlpool Corporation (NYSE:WHR), you own a company on the front line of this change. If you own an automotive stock like Ford Motor Company (NYSE:F) or General Motors Company (NYSE:GM), the value of your investment is based entirely on its technology strategy.
The big gains have come so far in the radio and platform technologies that are defining what the IoT is and does. The NASDAQ 100 average is diverging from the Dow because it’s in the big tech stocks that you’ll find IoT radio hardware sales and software platforms connecting things together.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and F.