I talk to my phone… not on it, but to it.
I also talk to my watch.
I talk to my car if I need directions, want to change the radio station or want to make a phone call.
And I talk to my computer.
We now interact with a growing number of machines each day.
The world we live in is filled with “smart” devices that are getting smarter. Our homes are becoming more connected. Our lives are becoming more connected.
I’ve written about the Internet of Things (IoT) (see here and here), machine learning and artificial intelligence before.
I’ve also written that these are three of the most important investment trends to watch, especially in this pivotal year.
Investors should be salivating at the growth… which is still just in the beginning stages.
A 541% Boom in Five Years
We’ve seen an explosive rise in the use of virtual personal assistants.
For example, only 15% of iPhone owners used Siri (Apple’s voice-controlled assistant) in 2013. Today, it’s 98%.
Competition like Amazon’s (Nasdaq: AMZN) Echo and Alexa, as well as Alphabet’s (Nasdaq: GOOG) Google Home and Microsoft’s (Nasdaq: MSFT) Cortana have also seen similar surges in usage.
In 2010, only 4% of U.S. homes had smart devices. Today, 20% have them – led by the growth of smartphones and tablets.
On top of this, more than half of all U.S. homes have at least one television connected to the internet.
Globally, these smart TVs continue to show exceptional strength. During the first half of 2015, 56% of all TV shipments in North America were smart TVs. In China, the rate is even higher, with four of every five televisions being a smart TV.
Over the next four years, the global smart appliance market is expected to experience a compound annual growth rate of 23.48%.
The average home in the U.S. currently has about eight devices connected to the internet. And today, laptops and PCs account for less than 25% of a home’s network traffic.
Some projections say that, by 2022, the average household (with two teenage children) will have 50 internet-connected devices.
And if you live with any children right now, that probably doesn’t seem as far-fetched as it might sound.
This year, it’s projected that more than 130 million connected home devices will be shipped. That’s a 60% increase year over year.
Clearly, the foundation is set for continued momentum in IoT and smart devices.
There are a lot of opportunities. But here’s why I’m still fond of the basics…
The Buildings Blocks
The sector I love the most in the IoT and connected device market is the essential building block: semiconductors.
They are the hardware that makes it all possible. And without them, devices would be just hunks of metal and plastic.
Semiconductors were one of the best-performing sectors in 2016, particularly with the explosive performance of NVIDIA (Nasdaq: NVDA) and Advanced Micro Devices (Nasdaq: AMD).
But there’s plenty of love here…
We’ve heard earnings from Skyworks Solutions (Nasdaq: SWKS) recently. Shares of the integrated circuit maker soared to a new 52-week high after they destroyed Wall Street expectations and provided better-than-expected guidance for the upcoming quarter.
Skyworks’ chips make machine-to-machine communication possible. And they’re found in everything from smart thermostats and security systems to game consoles, TVs and cars.
The company has moved from relying on smartphone business to becoming a key player in the growth of mobility and IoT. In fact, Skyworks’ chips support Amazon’s Alexa, Google Home and Microsoft’s Cortana – as well as autonomous cars.
Another type of company I like in this environment makes mixed signal and audio semiconductors. Cirrus Logic (Nasdaq: CRUS) is a good example.
Not only are our smartphones, tablets and laptops serving their most basic functions, but they’re also being used to constantly stream video and audio. That means we’re demanding higher sound quality from a single device.
But here’s the other thing… The more devices rely on voice commands, the more important it is to have high-quality voice and audio.
And we’ve seen tremendous growth here, too. Microphones are being built into almost every device imaginable.
This is why Cirrus is expected to see revenue grow more than 42% in the last quarter and current one.
And then there are companies like Microchip Technology (Nasdaq: MCHP), which allows the aforementioned devices to connect to the internet and the cloud.
Its business is booming. The company has expected revenue growth of more than 50% in each of the next two quarters.
Some people hate smart devices. Many doubt just how vastly connected the world will be.
But the good news is that growth is still in the early stages… which means there’s a bevy of opportunities for savvy investors to profit as our world shifts to being more interactive and more digital.
The basic building blocks of the trend are the place to start.
Good investing,
Matthew
Have thoughts on this article? Leave a comment below.
