As you may have noticed, everyday consumer products and machines can now be connected to the internet, where they can share data and interact with other electronic devices. With the rise of the Internet of Things, or IoT, demand for a new range of small, high-powered chips that enable electronic devices to collect and share information is growing at a rapid pace.
Investors looking to benefit from the IoT trend should take a closer look at these stocks.
Graphics chips designer Imagination Technologies(LSE: IMG) could stand to gain from the growing video processing requirements of IoT devices to deliver ever better user interfaces. The company also has a growing presence in the processing and radio processing chip markets and has high hopes from the scalable IP solutions it can offer to IoT products.
However, investors need to be aware that Imagination is currently heavily exposed to Apple, which accounts for nearly half of the group's total revenues. With this dependence on a single customer, Imagination's share price is highly susceptible to Apple's iPhone sales figures. And since Apple's new iPhone 7 sales have fallen short of earlier expectations, Imagination's shares have trended downwards too.
Nevertheless, city broker Liberum is sanguine. It believes that demand for the larger iPhone 7 is doing better than the market currently expects, and supply shortage means Imagination could expect to get higher royalty payments from Apple in 2017.
As manufacturers rush to install wireless IoT devices in your cars, Laird(LSE: LRD) is well positioned to benefit, especially following its recent foray into the automotive sector. Laird acquired German connected car solutions company Novero back in 2015, in order to gain access to the fast-growing automotive chip sector, but things haven't been plain sailing.
Novero's profitability has been a drag on the group's performance and Laird has been finding the restructuring and integration process costly. But in the longer run, the company's diversification could eventually pay off for investors. The company has made a big step in the automotive business, and it comes just as smartphone demand is beginning to decline. And since the automotive sector is the fastest-growing segment in the chip market, it offers a very exciting opportunity for the firm.
The rise of the IoT isn't just about improving connectivity for consumer goods. We're seeing the impact of the IoT in industry too. Whether it'll be in energy, transportation, or manufacturing automation, smarter machines can be used to better track performance, improve efficiency and increase profits. And at the heart of this Industrial Internet of Things, or IioT, is machine-to-machine (M2M) connectivity.
Here, CML Microsystems(LSE: CML), which designs and manufactures mixed-signal and Radio Frequency (RF) semiconductors, stands to benefit. The company is focused on two highly niche markets in global communication and solid state storage, which allows it to concentrate on ensuring quality and reliability, and enables it to meet the demanding specifications of industrial and professional applications.
After a difficult period in the past few years, things are picking up again, with city analysts expecting its earnings to grow by 3% this year, and 16% for 2017/18. This implies the shares are valued at a forward P/E of 20.9 and 18 respectively.
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Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of Imagination Technologies. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.