Investors looking for growth often migrate toward the technology sector in search of “the next big thing”.
Just think about how happy investors that got ahead of the smartphone trend with Apple (Nasdaq: AAPL) are today.
So what is the next big trend in technology?
I believe it is the internet of things (IoT)…
That’s the network of soon-to-be billions of “smart” connected physical objects that will one day encompass every aspect of our lives. These things will be embedded with sensors, software and connectivity that will allow these machines to collect and exchange data not only about themselves, but other machines, objects, infrastructure and the environment.
The goal for this huge amount of data generated is to process it into useful actions that can “command and control” things to make our lives better.
But I look at the IoT a bit differently than most of Wall Street, which is focused on the consumer side of IoT.
That market is likely to be dwarfed in size by the industrial internet of things (IIoT). The term ‘industrial internet of things’ was coined in 2012 by General Electric (NYSE: GE).
Industrial Internet of Things
So it’s not surprising that its said the CEO, Jeff Immelt, said in 2015 that “the industrial internet will be much bigger than the consumer internet.”
By 2020, revenues generated from the industrial IoT market will be about $225 billion, according to a conservative estimate from General Electric. In comparison, GE forecasts the consumer IoT will only generate about $170 billion by then.
Related: 3 Internet of Things Stocks Wall Street is Missing
What exactly is the industrial internet of things?
The CEO of Microsoft (Nasdaq: MSFT), Sayta Nadella, said the IIoT will turn everyday manufactured goods into what he calls “systems of intelligence”.
A study from the consultancy McKinsey forecast that the gains in the manufacturing sector alone from IIoT are pegged at between $900 billion and $2.3 trillion per year by 2025.
That’s not an outrageous forecast. Another estimate from technology research firm Gartner predicts the number of wirelessly connected devices, not including computers and smartphones, will rise to 21 billion by 2020. Other estimates range as high as 50 billion objects.
The data these objects generate are the raw material for a whole batch of new services. These services will be much more profitable than the physical products they are based on.
The long-term effect will be the need for industrial companies to turn into data and service firms or they will miss out on remaining the relevant in their specific industries.
GE: a Software Company?
The aforementioned General Electric says the industrial software market will be a big part of IIoT. GE forecasts the software market alone will reach $100 billion in size by 2020.
GE is already moving down the path toward transforming itself into an industrial software and services company.
The core of the company’s software business is Predix. GE calls it an “operating system for the industrial internet of things”. It considers Predix to be the “digital glue” for the IIoT, enabling infrastructure like power grids, buildings, energy generation gear and equipment like jet engines to be connected by wireless networks and controlled by computers.
GE’s goal is to have revenues from this part of its business hit $15 billion by 2020. Predix sales should be in the $4-$5 billion range by then.
And GE is well on its way to becoming a top 10 software company by 2020.
In the latest quarter, GE software revenues (including Predix) grew 36%, bringing software and services revenues to about $6 billion in 2016.
The Future
There are and will be a growing number of entrants into this space.
But there will likely be only a few winners. Think smartphones – Apple and Google rule. Or cloud computing where Amazon and Microsoft are the two big players.
As GE Digital CEO Bill Ruh told the Financial Times, “It’s winner takes all. A cloud-based platform to connect machines and build applications into it and have global scale… you’re only going to have a few of those.”
Who will rule the industrial internet of things?
That’s still unknown. We’re still in the early innings of the battle for supremacy. I will be highlighting possible winners in the sector in the weeks and months ahead.
You’ve probably already heard about the Internet of Things, however as we’ve discussed above it’s the Industrial Internet of Things where the real investing opportunities are. Sure, networked fish tanks (really, they exist), baby monitors, and iPhone connected doorbells are interesting, but the truly groundbreaking – and profit making – application of the Internet of Things will happen in industry.
In fact, it’s already happening but if you don’t work in a modern factory then you’re probably not witnessing it. And that’s where early investments can pay off… finding companies and technology applications most people aren’t looking at and getting in before the Wall Street crowd and financial news organizations start jawboning investors to pile in… long after they’ve already made their profits. And it’s how my readers and I are already making money from our Industrial Internet of Things portfolio.
It’s part of a bigger movement. One that will change how you work, where you live, what you eat, how you communicate, how you get from A to B, even how you sleep. And it will pressure governments and society to adapt quickly or fall by the wayside and risk irrelevance. I call this monumental shift “The Singularity”: the convergence of everything – all driven by the rapid ascent of technology and profit motive.
The Singularity presents investors with the opportunity for a pieces of the over $100 trillion growth over the next seven years. Growth for companies like GE and many, many others you’ve probably never even heard of. Some of that will derive from the Internet of Things, some from other sectors. That’s why I’m so actively uncovering every investment I can with this space. I’ve recently completed research on The Singularity that lays everything you need to know to get started… the technologies of the future, the pace of change, and the investments you can make right now – today – for a very profitable future. Click here now for access.
Author: Tony Daltorio
Tony is a seasoned veteran of nearly all aspects of investing. From running his own advisory services to developing education materials to working with investors directly to help them achieve their long-term financial goals. Tony styles his investment strategy after on of the all-time best investors, Sir John Templeton, in that he always looks for growth, but at a reasonable price. Tony is the editor of Growth Stock Advisor.
