One of the strongest industries on the market this year has been the semiconductors business. Throughout the industry, companies have successfully adapted to the changing needs of the consumer, including an increased demand for small, high-powered chips that enable “Internet of Things” (IoT) devices.
For those that don’t know, the Internet of Things refers to the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
For example, consumer-level IoT products include things like Amazon’s (AMZN) Echo “smart speaker,” wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.
(Also Read: How to Invest in the “Internet of Things”)
As demand for the microchips that power these IoT devices continues to grow, semiconductor manufacturers with a focus on IoT products will continue to benefit. With that said, we’ve found three already-strong stocks that are looking to benefit even more from further IoT growth.
1. STMicroelectronics N.V. (STM – Free Report)
STMicroelectronics is a French-Italian semiconductors company that develops circuits and discrete devices for use in microelectronic devices. The company specifically tailors its tiny, low-power technology for use in a wide range of Internet of Things products. After seeing three positive earnings estimate revisions over the past 60 days, STMicroelectronics has a Zacks Rank #2 (Buy) and is on the cusp of another solid year. Our current consensus estimates call for the company to post EPS growth of 150% on sales growth of 11% in 2017.
2. Texas Instruments (TXN – Free Report)
Although you might recognize the brand because of its calculators, Texas Instruments is actually one of the leading suppliers of advanced semiconductors in the world. The company’s IoT profile falls under its Embedded Processors division, which includes the Connectivity, Microcontrollers, and Processors categories. In its most recent earnings report, Texas Instruments saw growth of 6% in its Embedded Processors segment, and that’s not to mention that it once again surpassed the Zacks Consensus Estimate. TXN is currently a Zacks Rank #1 (Strong Buy).
3. Cypress Semiconductor Corporation (CY – Free Report)
Cypress Semiconductor is a leader provider of high-performance digital and mixed-signal integrated circuits. Just last year, the company shelled out $550 million to acquire Broadcom’s Wireless Internet of Things business and now its “WICED” Platform is one of the largest IoT portfolios in the industry. Currently, Cypress is sporting a Zacks Rank #2 (Buy), as well as an “A” grade for Growth in our Style Scores system.
Bottom Line
The Internet of Things is one of the most exciting emerging tech markets in the world. Home automation products are fun. In-car technology is cool.
And while these specific products are interesting, the real moneymakers in these situations are the companies that are building the tech that powers these products. The Internet of Things needs semiconductors to function, and as the IoT grows, so too will semiconductor companies.
The best way for investors to cash in on this growing trend is to identify semiconductor companies that are not only investing in the Internet of Things, but are also displaying solid fundamentals and impressive Zacks metrics.
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