Prior to the novel coronavirus pandemic, the Internet of Things, or the connectivity between smart devices with each other and to the internet, was already a wildly popular phenomenon. Previously, computerized devices operated within their own silos. Now, the interactivity between platforms allows for myriad innovations, such as artificial intelligence and machine learning. Logically, then, one of the hottest market sectors has been IoT stocks.
According to data from Statista.com, end-use spending on IoT solutions worldwide was believed to be in the neighborhood of $212 billion last year. Before lockdowns, social distancing and shelter-in-place orders became part of our lexicon, analysts projected the connectivity industry to hit nearly $1.6 trillion by 2025. Of course, that’s a tremendous catalyst for IoT stocks. But the kicker is that these figures could be understated.
Increasingly, concepts like the gig economy have allowed certain intrepid individuals to realize that work doesn’t have to involve punching a clock within the random cubicles of corporate America. Instead, IoT solutions such as edge and cloud computing facilitated reliable, rapid-fire performance, even if the worker was operating remotely.
But when the pandemic knocked the wind out of our sails, connectivity-based solutions became even more relevant to our new normal. Suddenly, everyone was functioning like a gig worker. That meant edge and cloud computing networks increased in prominence. In addition, cybersecurity became an even bigger concern.
However, it’s important to realize that IoT stocks cover a range of applications and solutions. For instance, home security is becoming a huge issue due to social unrest and property crime associated with the economic fallout from the pandemic. Therefore, I see significant upside for these connectivity plays.
- Nvidia (NASDAQ:NVDA)
- IBM (NYSE:IBM)
- Cisco (NASDAQ:CSCO)
- NXP Semiconductors (NASDAQ:NXPI)
- Intel (NASDAQ:INTC)
- com (NASDAQ:ALRM)
- DexCom (NASDAQ:DXCM)
Moving forward, next-generation solutions, such as smart city infrastructures, will be made possible through research and development of the Internet of Things. Thus, don’t look at these IoT stocks as merely pandemic-related opportunities but rather an investment into the future.
IoT Stocks to Buy: Nvidia (NVDA)
Well known for its graphics processing units, Nvidia has enjoyed a blisteringly positive year in 2020, up 130% since the start of January. Naturally, this makes some investors worried about holding the bag. However, the company has exposure to multiple relevant technology subsegments, making NVDA one of the more compelling long-term bets among IoT stocks.
First, Nvidia offers connectivity-based solutions across the tech spectrum, ranging from consumer applications to advanced infrastructural upgrades. For instance, Nvidia provides processors that power intelligent camera functions that incorporate artificial intelligence to determine optimal settings for photo shoots. Further, NVDA stock is levered to deep learning, which will be integral for smart city infrastructures and security protocols.
Second, Nvidia’s core business should continue to fly higher due to the novel coronavirus pandemic. Rising new infections raises the prospect of lockdowns or restrictive measures which should increase demand for video games. While cynical, this could be a powerful catalyst for NVDA stock.
With the advent of far more exciting and disruptive companies, legacy tech firm IBM has largely operated in the shadows this year. Since the beginning of January, IBM stock is down nearly 16%, which is almost the polar opposite of the Nasdaq, which is up nearly 23% for the year. However, ignoring “Big Blue” would be a mistake if you’re seeking viable IoT stocks to buy.
Thanks to the company’s Watson IoT Platform and its connectivity to IBM Cloud, the tech firm’s clients can adjust to business needs, scaling up as required. Further, with the cloud architecture, clients can manage their API network. As well, IBM Cloud offers robust data analytics platforms, helping businesses understand evolving market conditions.
Further, IBM stock is levered to multiple relevant industries, ranging from blockchain to artificial intelligence to cybersecurity. While the underlying organization is shedding the last vestiges of its old school past, you can wait out this long-term story thanks to its generous dividend yield.
Another entry among IoT stocks that are struggling with legacy businesses is communications specialist Cisco. As Fxempire.com contributor Alan Farley noted regarding challenges to CSCO stock:
“Revenue from legacy routing and switching businesses has been declining for many quarters, forcing the company to reinvent itself through software and services. This approach has worked well for other old school tech giants but income from the new divisions has, so far at least, failed to replace lost hardware revenue. Additional investment, acquisitions, and restructuring may be needed to cover the shortfall and get Cisco back into mid-to-high single digit growth.”
This is one of the reasons why CSCO stock has been choppy this year. Presently, shares are down more than 24% on a year-to-date basis.
However, with the lockdowns imposed by governmental responses to the novel coronavirus, there’s never been higher demand for edge computing. With the Cisco IOx platform, client companies can execute IoT applications on the edge with the confidence of Cisco’s highly secure network.
NXP Semiconductors (NXPI)
Although the Internet of Things sometimes has a consumer retail connotation, the implications of connectivity of course go far beyond this application. Increasingly, companies like NXP Semiconductors, one of the leaders among industrial IoT stocks, feeds tech sectors with the architecture necessary to promote comprehensive solutions, such as autonomous driving, communication infrastructures and eventually smart cities.
Not surprisingly, then, NXPI stock has performed well since succumbing to the March doldrums. At time of writing, NXP shares are up 8% YTD. However, stakeholders and prospective buyers should expect further upside ahead.
Primarily, this is because the company is on the forefront of holistic IoT. Put another way, forwarding IoT solutions is only part of the battle. The other, arguably more critical component is to protect connected devices and platforms from nefarious actors.
Remarkably, many IoT devices are incredibly vulnerable to cyberattacks, in part because they have an indefinite security timeline. Basically, unless the device owner frequently updates its security profile, outdated protective mechanisms invite bad actors. NXP Semiconductors is actively working toward an Internet of Trust framework, making NXPI stock an intriguing idea for the long haul.
Without introducing any other context, Intel seems like a reasonable play among IoT stocks. Mainly, INTC stock isn’t levered to the Internet of Things for its own sake. Rather, the chipmaker has applied its IoT solutions toward automotive production, sanitization of healthcare facilities (which is a huge PR boost due to Covid-19) and promoting positive environmental outcomes through the combination of AI systems.
But it’s really the many disappointments regarding Intel’s next-generation chips that have plagued INTC stock. To add insult to injury, the tech firm’s latest earnings results had everyone rushing for the exits. This is one of the riskier ideas among IoT stocks so I can appreciate that it’s not going to be for everyone.
However, Seeking Alpha contributor Arne Verheyde suggests that analysts are making a mountain out of a molehill regarding the third-quarter miss. Specifically, the reason “Intel did not beat can entirely be ascribed to weak results in non-core businesses, such as the 3D NAND unit which Intel is selling.”
Also, Intel CEO Bob Swan asserts that a defect in its next-gen chip process has been fixed. If so, INTC stock could be a huge discount at current levels.
Heading into the 2020 presidential election, we always knew that it was going to be a contentious one. And in line with the craziness that we’ve experienced this year, a decisive result was not available on Nov. 3. That didn’t stop protestors from causing agitation outside the White House and in other parts of the country.
Unfortunately, this was par for the course. During the initial serious outbreak of Covid-19 in the U.S., many regions in the U.S. reported a spike in property crimes that pre-dated the summer of protests. Perhaps cynically, this criminality bolstered the case for Alarm.com, a specialist in home security systems. I don’t think it will shock anyone that ALRM stock has jumped 46% YTD. If unrest continues, this name could continue leading other IoT stocks.
One of the distinguishing factors behind Alarm.com is its Smart Signal mobile app, which enhances users’ ability to communicate critical information through the underlying security network. In so doing, this app has reduced false alarms and expedited emergency services. In this chaotic period, I anticipate greater demand for ALRM stock.
A key reason why many younger investors gravitate toward IoT stocks is that they often have profound implications for improving our everyday lives and DexCom is a great example of this “feel good” narrative. Specializing in glucose monitoring systems for patients with diabetes, DexCom is a cut above traditional solutions because it doesn’t require finger pricks. Therefore, it’s a much more palatable solution for users.
Better yet, DexCom’s system is compatible with smartphones and devices. Therefore, as you’re going along your day, you can monitor your glucose levels. Should these levels require attention, DexCom’s app will alert you. To no one’s surprise, DXCM stock has performed very well this year, up 57% since the beginning of January.
To be fair, though, shares have been volatile since late October. However, this might be due to jitters associated with the pandemic. But once the market cools down, DXCM stock could turn out to be a great discounted opportunity.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.