Industrials have been a forgotten about sector until 2017 with big promises from the current administration in forms of reform, taxation, and regulation. So far this has held true with MMM and Caterpillar. Although there have been outliers to this with GE surprising the entire street by tumbling tens of billions in market cap. The company is going through extreme restructuring and is still suffering from debt payments and allocating capital to their higher profit business lines. Restructuring of a conglomerate of their magnitude is a tedious task that can span years, maybe even a decade, as we have seen with IBM. Although for certain deviations, the industry has been surprising for two quarters in a row. Another, relatively, forgotten about sector has been the Internet of Things. As cloud infrastructure, memory manufacturers, GPU producers, artificial intelligence, and virtual reality have taken the spotlight IoT has been forgotten about. Intel’s venture capital arm was leading investments in small cap companies, but following lagging growth and losses from other ventures such as Cloudera it seemed like IoT may have not been so hot. Recently, this has all change. The Internet of Things is poised for growth, and this especially true for a specific sector – industrials.
Industrial IoT companies are factoring in high growth looking forward. CalAmp for example, has gained over 20% in the past six weeks and has a P/E of 220. That price earnings multiple may be ridiculous to some, but to some analysts it’s worth it. For a smaller company it could be an acquisition target as they close bigger contracts, or their growth could fall short as we have seen for other smaller companies in attractive sectors like CyberArk in cybersecurity. Salesforce was laughed at for a long time by having a P/E over that of CalAmp, but it continues to innovate and surprise. IoT companies have been attracting many investors from Intel, analysts, but even Dubai’s government. Mohammed bin Rashid Al Maktoum of the YAE has launched the Dubai Internet of Things Strategy and Data Wealth Initiative. In the UAE’s case it is to make the country a clean, ‘smart’ city that Google is also aiming to accomplish. This is another big push from the UAE as certain Middle Eastern oil rich countries realized that we have passed Hubbert’s Peak oil. In fact, Saudi Arabia’s largest oilfield may run dry by 2070. Saudi Arabia and UAE are looking to lead in high growth industries which involve blockchain, data science, eCommerce, and now IoT.
What is driving industrial IoT? As with most industries it is existing entities looking for wealth creation or saving costs. According to McKinsey Global Institute IoT will generate $11 trillion in economic benefit by 2025. HIS Markit, a market research company, also sees 75 billion smart devices by 2025. For some investors, IoT may still be a little risky, but there are plenty of companies driving the innovation behind it while spread out accounts from different industries. For believers in IoT semiconductors would be a big bet, as well as cloud services. Applied Materials and Intel would be a couple leaders for the former, and Cisco, Bosch, AWS, and Azure for the latter.
IoT is back bigger and better than ever. Some technologies are too ahead for their time as IoT may have been in 2015, but now is primetime for the growing sector with a lot of faces watching. Dell Technologies is going in big, investing $1 billion over three years led by Ray O’Farrell, CTO at VMware.