Which stocks will benefit from the industrial IoT revolution?

The pandemic accelerated the demand and need for IoT solutions. Despite current cyclical headwinds, particularly impacting semiconductors, the market for connected devices and sensors is set to continue growing this year and beyond.

• Industrial IoT applications range from manufacturing to healthcare to transport.
• Global X has forecast industrial IoT to grow at a CAGR of 20.5% by 2030.
• How to invest in industrial IoT: the Global X Internet of Things ETF is up 10% in the past six months.

Last week, President Joe Biden launched Cyber Trust Mark, the US government’s cybersecurity labelling programme. It’s designed to protect consumers and users of internet of things (IoT) devices, including smart fridges, smart TVs and smart fitness trackers, to name a few.

The action can be taken as a clear sign of IoT’s increasing importance to the ways in which we will live and work in the future. However, with demand for consumer electronics, home connectivity solutions and smart devices having weakened in the near term as a result of the slowing economy and elevated inflation and interest rates, industrial IoT is increasingly under the spotlight as a theme.

To give an example of industrial IoT in action, in the cities of the future, IoT devices, including connected sensors, smart lights and meters, will gather data on urban mobility, enabling traffic and people to flow smoothly. By harnessing artificial intelligence (AI), machine learning and cloud computing, cities will use the data to improve transport infrastructure as well as road safety.

There are many other ways that industrial IoT will have a transformative impact: boosting efficiency in supply chains, streamlining manufacturing processes and delivering better and more accurate healthcare. Industrial IoT has the potential to help companies reduce costs and raise their top- and bottom-lines, across a wide variety of themes and industries.

From chips to medtech

Silicon Labs [SLAB] had been a key supplier of semiconductors for wireless products, but a couple of years ago the company made the decision to focus purely on IoT chips. Industrial and commercial sales made up $151m of Q1 2023’s $247m revenue, while home and life revenue was $96m.

Silicon Labs’s CEO Matt Jonson told EE Times last October that his company “can become to our industry in wireless connectivity [and] embedded connectivity, what other companies have done in their markets, like Nvidia [NVDA] did for GPUs and AI, or what Qualcomm [QCOM] did for cellular”.

Elsewhere, Sensata Technologies [ST] develops, manufactures and sells sensors for a wide range of industrial applications. It derives the majority of its revenue from the automotive industry. The demand for electric vehicles is forecast to help its electrification revenue accelerate to $2bn by 2026 from $460m in 2022.

There’s also engineering giant ABB [ABBN.SW], whose industrial IoT applications are used by oil and gas producers to streamline offshore operations through predictive maintenance. Additionally, IoT technology powers wearable devices such as DexCom’s [DXCM] glucose monitoring systems, which take blood readings in real-time and then send data wirelessly to smartphones, allowing diabetes patients to manage their condition remotely.

The need to digitise will drive growth

Global spending on IoT is forecast to reach $805.7bn in 2023, up 10.6% from 2022, according to International Data Corporation (IDC) research published in June.

Growth in industrial IoT is going to be driven by the need to connect with digital infrastructure, brought about by the events and disruption of the past few years, according to Carlos M González, IoT researcher at IDC. As such, González argues that IoT can no longer be considered “a luxury”.

The US, China and western Europe are expected to account for approximately half of the projected spend during this forecast period. Discrete and process manufacturing will be the main market, making up approximately a third of the spend, followed by professional services, retail and utilities, which will have a combined share of 25%. The telecommunications sector is set to see the fastest CAGR of 11.7% between 2023 and 2027.

"For organisations to excel in data-driven operations, investing in IoT projects is essential,” stressed González.

Industrial IoT to grow at a CAGR of 20.5% by 2030

Industrial IoT’s long-term investment case is likely to be boosted by continued advancements in cloud computing and automation and robotics, as well as immersive technologies, i.e. the metaverse. The convergence of these will enable the creation of smarter factories, for instance, according to Ido Caspi, research analyst at Global X.

“Long-term trends of continued IoT adoption remain strong, and post-Covid digitisation of manufacturing processes, healthcare systems, building management systems and supply chains are a lasting tailwind,” Caspi told Opto.

Global X has forecast that industrial IoT will grow at a CAGR of 20.5% by 2030.

AI will accelerate further demand

Looking further ahead, the generative AI frenzy and consequent chip boom should be another tailwind for the industrial IoT theme.

“As the scope of generative AI applications expands, investments in sensors and IoT infrastructure could spike as buyers look to invest in the right components and sensing equipment to capture machine and hardware systems data,” Caspi added.

With more companies and industries turning to AI for their data-driven analytics capabilities and to help them make more informed decisions, the global market for artificial intelligence of things — or AIoT — could be worth $91.2bn by 2028, according to a 19 July report from ResearchAndMarkets.com.

How to invest in industrial IoT

ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.

Funds in focus: the Global X Internet of Things ETF

The Global X Internet of Things ETF [SNSR] offers exposure to IoT-related companies operating in multiple industries and markets, including semiconductors, telecommunication equipment, industrial machinery and medical devices. As of 30 June, the information technology (IT) sector accounts for 66.2% of the fund’s portfolio, followed by industrials (20%), consumer discretionary (6.9%), healthcare (6.4%) and communication services (0.5%). The fund is up 9.7% in the past six months.

The iShares Smart City Infrastructure UCITS ETF [CT2B.L] could be an alternative play on the theme. As of 24 July, industrials has the highest exposure (49.45%), followed by IT (36.77%). The fund is up 6.7% in the past six months.

The iShares Automation & Robotics UCITS ETF [RBOT.L] is another option. IT makes up 69.92% of the fund, while industrials account for 26.33%. The fund is up 13.6% in the past six months.