Now that the stock has been bumped up to a Zacks #1 Rank Strong Buy, I’m still a fan of “the architect” of the worldwide web. Here was the argument in my Zacks Confidential report from April 13…
Now that Apple (AAPL – Analyst Report) has launched its first smartwatch, the “Internet of Things” (IoT) will be getting a lot more press and investors will be busy trying to uncover the opportunities.
The Apple Watch is not the first wearable smart-device that can connect to the web and other devices, but it will certainly create the most buzz, fostering not only curiosity about the IoT, but also broader acceptance of the mysterious technology and its goal of storing and tracking more of your data and actions.
But the IoT is not just about connecting your home, car, appliances, devices and body to each other and to the web, it’s about a revolution in industrial innovation and efficiency that will make the global economy significantly more productive.
How much more productive? How about $19 trillion worth.
In this report, I’ll explain that number and much more about what the IoT is and how to get a piece of those trillions.
What is the Internet of Things?
Goldman Sachs calls the IoT “the third wave of the Internet.” The first “wave” was the World Wide Web connection to your desktop in the 1990s. The second wave was when mobile devices could connect. Simona Jankowski, Goldman Sachs Global Investment Research senior analyst, writes on a special website devoted to the IoT…
“By connecting to the Internet billions of everyday devices –- ranging from fitness bracelets to industrial equipment –- the IoT merges the physical and online worlds, opening up a host of new opportunities and challenges for companies, governments and consumers.”
The Internet of Things lets devices talk directly to each other, make joint decisions, and exchange data between devices and often without the need for the cloud or servers. For example, a smartwatch could be set to turn on the air conditioning in your house when you get a certain number of miles from home or your car could store performance data that is analyzed or shared in real-time.
Factory machines and robots could “talk” to one another and “make decisions” together that alter production.
And Apple is obviously thinking ahead about the wide applications of monitoring individual health with the new tool they created for developers called HealthKit, “which allows all the incredible health and fitness apps to work together, and work harder, for you. It just might be the beginning of a health revolution.”
When you throw in the actual Internet and its cloud storage and data-crunching abilities, then all that information between devices can be used in other ways. It’s those “other ways” that prompted IBM (IBM – Analyst Report) last week to announce a $3 billion investment in IoT data collection and mining.
Twin Titans of the IoT: Cisco and GE
$3 billion is nice, but what about that $19 trillion I mentioned? That massive amount has been tossed about in connection with the IoT ever since Cisco CEO John Chambers first uttered it at the Consumer Electronics Show in January of 2014.
That was his estimate of the cumulative economic impact by 2020 associated with adding intelligence and connectivity to everyday objects and factories, as well as every plane, train, and automobile. Chambers, who prefers to call the trend the Internet of Everything, says this…
“It will be bigger than anything that’s ever been done in high tech.”
In essence, the technology will become as ubiquitous as microchips are, but maybe even more so, because it will extend beyond machines and computers. Do your car tires have an RF (radio frequency) chip to transmit pressure and other data to your console? Tires are now “connected” devices.
But that giant $19 trillion increase in global GDP isn’t just about consumer devices and new products. It’s about giant cost savings for “intelligent” corporations. It’s about businesses harnessing the cloud and big data to teach them how to be more efficient.
A great ongoing example is how General Electric has been investing in the technology to gather more data about all the machines they build, from locomotives and jet engines to washers and medical equipment. In October, ZDNet.com reported on GE’s rollout of its Predix software platform to developers and users in 2015 as it aims to add intelligence to industrial gear…
General Electric on Thursday (October 9, 2014) announced a bevy of alliances with enterprise technology heavyweights as it lines up support for its Predix platform, which is software designed to add intelligence to various Internet of things end points.
For GE, the Internet of things, which the company calls the industrial Internet, the networking of machines and industrial gear is a growth engine. GE wants to position its turbines, engines and other equipment as smart gear that are connected via its software.
GE added that it will deliver more than $1 billion in incremental revenue from its roster of 40 industrial Internet services. GE currently monitors and analyzes 50 million data points from 10 million sensors on $1 trillion of managed assets daily.
How Cisco and GE research, develop, and invest for the IoT will say a lot about the business opportunities. Right now, they are diving in big and that says a lot about the future they see.
Buy CSCO Now
Wim Elfrink, Cisco’s executive vice president for industry solutions recently wrote in a blog…
“Today, 37% of total device connections to the Internet come from industrial applications, and industrial connections will surpass consumer-based connections in 2017. IoT serves as the technology foundation in the continuing technology evolution toward the Internet of Everything (IoE), which is the intelligent networked connection among people, process, data AND things. IoT is an $8 trillion opportunity; IoE promises $19 trillion in global economic value over the next decade if we establish the right building blocks for widespread adoption.”
The potential on the industrial applications for IoT cannot be overstated. Elfrink goes on to talk about their partners…
“Helping to lead the revolution taking place in industrial applications for IoT are Shell, Rio Tinto, Rockwell Automation, Schneider Electric, Intel, Zebra, Freescale, AirWatch and AGT to name just a few of the firms who recognize the business outcomes made possible by this new solution.”
The Obvious Pick: Cisco is a Zacks #2 Rank trading at 14X forward estimates with a 3% dividend yield. The company that keeps the Internet running will obviously be at the center of the IoT trends and should be able to reinvent itself as needed, as it looks ahead.
(end of April 13 report)
In that Zacks Confidential report, in addition to Apple as “the obvious pick,” I also recommended investors buy Skyworks Solutions (SWKS – Analyst Report) and Infinera (INFN – Snapshot Report) among “consumer-device plays” for the IoT. You can access the full report here.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.