By now most have heard references to the Internet of Things, or IoT, and how large it will become, creating billions of connected devices and trillions of dollars annually. But it might seem difficult to determine which companies have the most to gain from IoT, and where the best investment value lies. Here's why I think Intel (NASDAQ: INTC ) , and companies like it, are an investor's best bet.
What is the IoT?
The IoT is a system of "things" connected to Internet networks, and these things will overtake smartphones and tablets in quantity. IDC estimates there will be over 30 billion autonomous connected things in 2020, almost three times more than today's connections. The MIT Technology Review estimates that nearly all of this growth will exclude mobile phones.
So how do we get to 30 billion connected devices? The answer is by connecting the Internet to ordinary products, such as cars, credit cards, refrigerators, home heating and cooling systems, streetlights, elevators, billboards, passports, and so on. Just about any and every item will have Internet connection capabilities, collecting data to create efficiency and improve convenience.
IDC earlier this month put the worldwide IoT market at $3.04 trillion in 2020.
Where's the benefit?
Certain companies stand out as beneficiaries of the Internet of Things: Apple and Google in hardware and software, along with Verizon and AT&T as 4G LTE network service providers. However, very few companies have an overwhelming market share in key IoT industries on a global scale.
For example, AT&T and Verizon might reap the rewards of U.S. connections via data consumption, but they have nothing to gain in China, Europe, or other markets. This brings me to Intel (NASDAQ: INTC ) , a global chip company that plays a crucial role in IoT.
Intel operates in several industries, suggesting it has a great opportunity to grow in the Internet of Things. First and foremost, Intel produces the chips that power smartphones, tablets, PCs, and other connected devices. While 65% of Intel's business derives from PC-related chips, the fact that the company holds the technology to power all devices serves as a major advantage.
Intel has guided to have its chips in 40 million tablets by year's end, up from 10 million last year, meaning its presence in mobile computing is growing. The company's technology also powers data centers, which will be crucial for the IoT thanks to the amount of data that will be collected from billions of devices.
The Internet of Things is a top priority for Intel. During Intel's last quarter, its IoT revenue rose 27% year over year, and it now creates more than $1 billion in annual revenue for the company. With Intel's global presence, stabilizing PC business, and growing mobile chip segment, the company has an opportunity to find revenue growth as billions of new connected devices require chips. That holds the promise that IoT will account for more than 5% of Intel's total revenue in the future.
Something to think about
Intel is sure to benefit from this movement on a large scale thanks to its leading presence in a segment of the market that is crucial to the success of the Internet of Things. Devices must have power and a means for Internet connection, two areas where Intel chips play a role.
For investors seeking IoT beneficiaries, there are many options. However, those companies with the greatest shot to succeed will have the resources and operating presence for global penetration. Also, a company's services or products must maintain a competitive advantage. Intel is one of those companies.
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