As far back as 10 years ago, analysts and market researchers were hailing the Internet of Things (IoT) as the next big thing in global industry and, by proxy, one of the major sources of opportunity for traders and investors alike. Throughout the first half of this decade, wider market interpretation of activity in the sector suggests that the IoT industry has, to a degree, failed to live up to the hype and expectation that surrounded it when it was first conceived.
This perception is largely incorrect, however.
While the IoT space hasn't moved as fast as might have been first expected, a number of companies have made considerable strides towards establishing IoT as a major global industry throughout the period in question. The important thing to recognize is that an industry like this requires an established framework from which it can grow. Over the last five or six years, some of the biggest players in the sector have allocated considerable capital towards building out this framework and – in doing so – have now opened up the door for secondary entrants to stake a claim in the space. Once again, this has presented investors with an opportunity to take a position in these secondary entrants, in anticipation of their ability to capitalize on the framework laid by the first movers.
Before we get into any specific examples and some forward growth metrics, let's quickly introduce the sector for those not familiar with the terminology.
IoT is a term used to describe the interconnectivity between devices and (to some degree) everyday inanimate objects through the harnessing of Internet network technology. One of the most commonly cited examples that is yet to be widely established (but that offers up a perfect illustration of how this sort of interconnectivity can be used at a macro scale) is town and city level waste management.
If a city's government can somehow figure out which of the waste bins across the city are full and which ones are empty, it can avoid the necessity of its workers to trawl the city checking every waste bin in anticipation of emptying those that require emptying. Under the IoT principle, this is a relatively easy system to implement and, as demonstrated here and here, it is something that some of the more forward looking municipalities are already putting in place.
All it takes is a sensor in the waste bin in question and the connecting of the sensors to a citywide piece of software. Once a bin is full, it signals to the software and the waste management workers can go and empty it. It seems simple, but these sorts of time and capital saving initiatives are only now really becoming possible because of the way we can integrate previously inanimate hardware with concept driven software.
And that's the key to all this: using the internet as a tool for reducing wasted time and cost and – by proxy – increasing efficiency.
So that's an example, where is the industry going?
In a word, it's going to be huge.
Markets and Markets estimate that the IoT space will be worth $561 billion by 2022. Forbes expects the business to business (B2B) side of the industry alone to grow to $267 billion by 2020.
So where can an investor look to allocate capital as a way of capitalizing on this dramatic growth?
A number of household name stocks offer what amounts to an indirect exposure to this industry, some of which have been involved in the laying of the groundwork for forward growth and others that are just getting started in space.
International Business Machines Corp. (NYSE:IBM), for example, has developed its now famous Watson cognitive system that seeks to exemplify the IoT concept in a single machine. Watson is an artificial intelligence device that can apply its machine learning capabilities to a range of different social and industrial problems and – in doing so – can change the way objects interact with network systems and vice versa.
IBM expects Watson will play a leading role in its IoT efforts going forward, meaning that while the company is a somewhat indirect exposure to IoT as an industry right now, IBM should become a more direct exposure to the space over time as it allocates increased resources towards Watson and, in turn, as Watson plays an increasingly integral role in the consumer and commercial technologies that comprise its portfolio.
Texas Instruments Incorporated (NASDAQ:NASDAQ:TXN) is another example.
Again, this one is an indirect exposure to the space but, over time, market forces should increase the portion of Texas Instruments' operations that are rooted in the IoT industry and – by proxy – should increase the impact that growth in the IoT space has on the company's market valuation.
Specifically, Texas is positioned to dominate the commercial scale sensor technology side of the industry. Using the above illustration as an example, the company creates the types of sensors necessary to detect whether a waste bin is full and to relay this information across the network that underpins the software that serves as the interface of the concept.
So what about an investor looking for more direct exposure?
In July, Cemtrex (NASDAQ:CETX) announced that it has established a new subsidiary, which it has called Cemtrex Advanced Technologies Inc. Cemtrex Advanced Technologies will focus solely on organic and inorganic growth opportunities in the IoT and wearables markets.
Many will likely already be familiar with Cemtrex. The company is a New York based technology stock that has established a considerable presence in the industrial equipment space. Specifically, the company creates instruments and emission monitors for industrial processes as well as industrial air filtration and environmental control systems for commercial and industrial clients, and it's been very successful in this market to date. Last year (twelve months to end September 2016) Cemtrex generated $93.7 million revenues, up from $56.8 million recorded during the same period a year earlier. During the twelve months to date, Cemtrex breached the $100 million revenues mark, as detailed by CEO Saagar Govil.
The IoT concept is a natural extension of Cemtrex's current operational activity and the just mentioned Govil expects IoT to underpin the company's growth to its next major milestone, $500 million in annual revenues.
Additionally, and more recently, Cemtrex announced that it is working to develop a smart desk type technology, features of which will include a high-resolution multi-touch display with the ability to draw, scan documents directly on the desk, wireless connectivity for full access to the cloud and next generation wireless charging capabilities for mobile devices. The prototype should be ready by the end of this year and the company anticipates a sale-ready product during 2018.
This is important because it represents the first product development program for the Cemtrex since announcing the formation of its Advanced Technologies subsidiary.
This, then, is an example of a company that falls into the latter of the two categories outlined above; a second mover in the space that's poised to capitalize on the framework that the bigger names have established over the last half decade. While it's a smaller company than some of the incumbents, IBM and Texas being two of such, it's a far more direct exposure to this growing industry and – if the company can execute on its strategy through the newly formed subsidiary – it could be a rewarding allocation in an IoT portfolio.
Third quarter results are expected to hit press on August 14.