Internet of Things:

Connecting to the Trillion-Dollar Trend

Contents

Intro 3

What is the Internet of Things? 4

The Opportunity 5

The Pandemic’s Impact 6

2 Chip Plays For IoT 7

Healthcare Play For IoT 10

My Top IoT Pick 12

Bottom Line 13

Internet of Things: Connecting to the Trillion-Dollar Trend 2

Intro:

The world is getting more connected than ever, with digital technology driving
humanity to the next frontier of advancement. The 4th Industrial Revolution (aka
Industry 4.0) is commencing, driving innovations like cloud-computing, artificial
intelligence (AI), the 5G revolution, and the internet of things (IoT).

The internet of things is next on the tech docket for prolific growth. After years
of hype, IoT is finally on the precipice of widespread adoption in our global
economy.

IoT is a reasonably untapped tech market with a 2020 market value of $82.4 billion
(according to Quince Market Insight). This figure is projected to go parabolic over
the next decade and be worth more than a trillion dollars by 2025.

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What is the Internet of Things?

The internet of things is all around us and is continuously recording and

transmitting information. This may sound like something out of a sci-fi movie, but
this technology of the future is becoming a reality today. Anything connected to
the internet with sensors that transmit data is a part of the internet of things.

IoT devices go beyond your standard smartphone, tablet, or computer. This

space includes things like autonomous vehicles, smart TVs, smartwatches, and
even utilized in manufacturing and supply chains for smart operations. ‘Smart’
is a word that is often used when describing IoT devices because these machines
are precisely that. They work autonomously with each other and the internet to
make our lives easier.

IoT technology is putting the world in real-time. Machine data from sensors at
shipping docks, in a manufacturing plant, and on a healthcare patient, transmit
information at light speed for improvement, resolutions, analytics, and other
real-time utilization.

Autonomous vehicles, smart homes, and smart cities are no longer science
fiction. We live in the world of tomorrow, and there is so much opportunity in
the equity markets today.

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The Opportunity

The Roaring 20s are underway, and it is going to be a digital tidal wave with the
internet of things (IoT) surfing on a swell of exponential returns from technological
advancement. The progression of technologies like semiconductors (Moore’s
Law), ultra-high-speed connectivity everywhere (5G), the need for real-time
visibility, and the falling prices associated with cutting-edge sensor technology
are the impetuses for IoT’s impending demand surge.

IoT devices have become cheaper and easier than ever to implement. Large
enterprises are utilizing connected technology more and more every day, while
small and medium-sized businesses are finally participating in the IoT revolution.

According to experts in the field, there are more than 30 billion connected IoT
devices in the world today, a figure that is expected to blow up to 77 billion by
2025. That means 127 new IoT devices are being connected every second.

According to Verified Market Research, IoT is expected to grow by 25.7% annually

and reach $1.3 trillion by 2026.

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The Pandemic’s Impact

The pandemic has brought the world closer than ever, and I don’t mean in
proximity. The microscopic terror has forced the economy to leverage every
digital capability at its disposal and consequently connect everything around us.
The world of IoT and its ‘smart’ mobility is driving this “new connected normal.”

The stocks behind this digital revolution are flying to the moon, and it is time you
start considering them for your portfolio.

2020 has shown the world the ease and convenience that technology provides,
and society is not turning back. We saw years of digitalization packed within
the 12 months of 2020 and catalyzing a giant leap forward for the 4th Industrial
Revolution, propelling demand for a smarter world powered by the internet of
things.

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2 Chip Plays For IoT

Semtech (SMTC)

The pandemic has connected everyone and everything through digital

technology. 2020 has been the most digitalizing year to date, with society forced
to rely on technology for everything from work and entertainment to grocery
shopping. The economy depends on connectivity and the internet of things (IoT)
to function efficiently in the new normal. It’s time to start adding chip makers at
the forefront of IoT innovation into your portfolio.

Semtech (SMTC) is a leading global supplier of signal semiconductors as well as

a provider of cutting-edge infrastructure algorithms for high-end consumer and
industrial equipment. This business has remained somewhat under investors’
radar since the dot-com bubble, but that is coming to an end with its recent big
tech deals.

The company’s LoRa devices and wireless radio frequencies have been the
business’s primary growth driver in 2020 and are the catalyzer for Zacks’ buy
rating today. Semtech’s LoRa recently won the validation of tech giants like Cisco
(CSCO) and Amazon (AMZN), which is expected to drive significant growth in the
coming years.

SMTC has been driving innovative growth since the 1960s when it was incepted.
2020 was the first year that these shares have materially exceeded its dot-com
bubble high of $60 a share. This stock has a lot more room to run as the 4th
Industrial Revolution commences, and the need for connectivity continues to
surge.

Analysts have gotten increasingly optimistic about the growth trajectory after
its announced team up with Amazon and have pushed up their long-term EPS
estimates, driving SMTC into a Zacks Rank #1 (Strong Buy).

LoRa & The Amazon Effect

Amazon is slowly but surely taking over the tech world with its hand seemingly
in every technology of the future. Its IoT investment is one that the company
hopes will benefit from the increasingly digital and connected economy we live
in and will drive substantial growth in the Roaring 20s.

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Where Semtech comes in is with the Amazon Sidewalk, with its long-range and
low-energy technology, aka LoRa powered devices, which is perfect for the IoT
appliances that Amazon is employing. This technology is meant to make society
‘smarter’ securely.

According to Amazon’s website, “Amazon Sidewalk is a shared network, coming

later this year, that helps devices like Amazon Echo devices, Ring Security Cams,
outdoor lights, and motion sensors work better at home and beyond the front
door. When enabled, Sidewalk can unlock unique benefits for your device,
support other Sidewalk devices in your community, and even open the door to
new innovations like locating items connected to Sidewalk.”

Analysts anticipate that Semtech’s partnership with Amazon will net the
business $100 million in revenues annually within the next 5 years (nearly 1/5th
of the business’s current yearly sales) as the Amazon Sidewalk technology gains
traction. This deal gives Semtech’s LoRa technology the big tech seal of approval,
and I am sure that its cutting-edge chips and expertise will be in strong demand
in the coming years.

According to HIS Markit, the ‘smart home’ market is proliferating and is expected
to reach $192 billion by 2023. This would represent an over 35% compounded
annual growth rate. Semtech’s LoRa technology is poised to ride this rocket ship
through the Roaring 20s.

LoRa is estimated to drive 40% annual growth over the next 5 years and
stimulate $500 million in reoccurring revenue. This technology, combined with
its smartphone and datacenter chips, will launch this ‘under the radar’ stock to
the moon over the next decade.

Qorvo (QRVO)

Qorvo (QRVO) is a chip powerhouse striving to digitally connect the world. The
global pandemic has forced society online, and today we are more connected
than ever before through the world wide web. The impending 5G revolution,
combined with the pandemic’s digitally inclined tailwind, has made Qorvo more
valuable than ever before.

The Business

Qorvo is a radio frequency (RF) technology leader: the driving force behind
the internet of things and the 5G revolution. This next generation of mobile
connectivity is anticipated to connect everything around us. Smart cities are on
the horizon, and Qorvo’s next-generation RF chips are going to be integral in its
build-out.

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The RF solutions market is expected to explode over the next 5 years as the 5G
technology rolls out. The RF market is estimated to expand at a compounded
annual growth rate (CAGR) of 14%, reaching $45 billion by 2025, according to
Grand View Research.

We are only at the dawn of the 5G revolution. This technology is just beginning
to take hold of the mobile world, and its implications are beginning to ripple
across all sectors. Qorvo is well-positioned to heavily profit from this exciting
industry’s rapid growth.

Qorvo’s cutting-edge RF chips are being utilized in the first 5G iPhone (the
iPhone 12), and demand is expected to be enormous. Analysts project that this
“landmark” smartphone will sell 50 million units in the final months of 2020, with
this figure expected to multiply in 2021.

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Healthcare Play For IoT

Dexcom (DXCM)

The Dexcom pick reflects the company’s highly visible and sustainable growth
opportunity through its leadership position in the diabetes area. We like this
leader in the medical devices space for its pioneering role in the Continuous
Glucose Monitoring (CGM) platform that allow for efficient monitoring and
controlling of insulin.

CGM and its real-time monitoring capabilities are the future of diabetic care,
as it provides users with second-to-second actionable blood sugar data that
improves the ability to manage diabetes. The company’s current CGM platform,
G6, is a technological breakthrough in diabetes devices, allowing for both real-
time blood sugar monitoring as well as automated insulin dosing. Users can now
accurately monitor blood sugar right from their smartphones, eliminating the
need for finger pricks and bulky insulin pumps.

The G6 platform has had enormous success, accelerating Dexcom’s topline,

and driving the company’s profitability. The firm’s revenue is split up into three
segments: Sensor & Other Revenue, Transmitter Revenue, and Receiver Revenue,
with roughly 80% of total revenue coming from its Sensor & Other Rev segment.

Dexcom’s next generation of devices, the G7 platform, is anticipated to be released

in the summer of 2021. The updated platform is expected to be disposable
and, most notably, less expensive. This unveiling will improve its competitive
positioning in the CGM market.

Dexcom’s most significant rival is Abbott’s FreeStyle Libre. The FreeStyle Libre is
less expensive but proven to be less accurate than the G6, according to studies
done by the American Diabetes Association.

Cost is now the primary hurdle that Dexcom needs to overcome, and from
all appearances, the G7 platform should have no issue jumping right over the
FreeStyle Libre. Diabetes is the world’s most common disease. According to the
International Diabetes Foundation, it’s estimated that more than 400 million
people have diabetes worldwide (only 25% being treated), and this number
is expected to grow to over 700 million in the next 25 years. This presents an
enormous market for Dexcom.

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The tedious and annoying finger pricks no longer need to be an issue for the
hundreds of millions suffering from diabetes. Dexcom’s current target consumers
are those with type 1 diabetes that require as many as 10 finger pricks a day and a
bulky insulin pump on their side. The G6 significantly improves the quality of life
for anyone that has converted to Dexcom’s revolutionary technology.

Now the company is attempting to broaden its total accessible market (TAM)
with the hope of capturing more customers, including hospitals that could
use this in surgery, nursing homes, those who are pregnant, those who have
type 2 diabetes, etc. The G7 platform’s lower-cost offering will make all these
applications much more viable.

2020 Activity

DXCM continues to illustrate impressive double-digit growth figures both in

its shares price and its income statement (quarterly). Its topline has illustrated
consistent growth, with the G6 paving the way for its propulsion into robust
profitability. Dexcom’s margins are expanding much faster than analysts
anticipated demonstrating the company’s operational excellence.

With the G7 on the horizon, the future is bright for this stock going into the
Roaring 20s. In healthcare, wearable IoT devices are a budding market, and
Dexcom has a firm lock on the CGM space. This is an excellent long-term play in
the e-health arena.

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My Top IoT Pick

Splunk (SPLK)

Splunk’s real-time data management and analytics leadership span across many
growing business applications with massive addressable markets. The company’s
primary revenue drivers now are security information and event management
(SEIM), as well as IT operation management.

With companies operating remotely, security threats are heightened, and Splunk’s
best-in-class SEIM platform will become even more of a necessity. Splunk’s ability
to automate IT workflows is also increasingly attractive for companies cutting
human capital.

These two applications are just the tip of the iceberg for the eminence
functionality that Splunk is capable of. The firm is pioneering real-time business
analytics that will take structured and unstructured machine data from almost
any source and turn it into actionable insight. The internet of things (IoT) is about
to hit an inflection point with the 5G technology rollout.

5G is going to connect almost everything around us. The ability to analyze

and make decisions on real-time data will give Splunk’s clients a leg up on its
competition. Some analysts are putting its total addressable market at close to
$40 billion, more than 16x its current annual revenue. The future opportunity for
SPLK is enormous, especially considering there are no close competitors in the
space.

Recent Activity

Splunk (SPLK) had a nasty earnings report, missing big on both top and bottom
lines, which caused a whiplash 23% sell-off, creating what I see as a ripe buying
opportunity for this innovative leader. Short-term headwinds have caused
a massive profit-pull from the stock pushing its RSI straight down to oversold
levels, and I am down here to pick up the shares.

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Bottom Line

The world of technology is a volatile and rapidly advancing market. But sometimes,
the potential of an up-and-coming industry is just too big to ignore. That is the
case for the internet of things this year and for many years to come. This market
segment is one of the fastest growing corners of the tech world, and with the
arrival of lightning-fast 5G networks, it is just starting to hit its stride. So, if the
world of IoT isn’t on your radar yet, put it there—along with the selections above.
It could be an ideal growth segment for investors to focus on in 2021.

The world is advancing fast, and it is time to get your portfolio ahead of this
progression.

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Disclaimer

©Copyright 2021 Zacks Investment Research

This Special Report has not been authorized, sponsored, or otherwise approved or endorsed by the
companies represented herein. Each of the company names represented herein are trademarks of
Semtech Corporation; Amazon.com, Inc.; Qorvo Inc.; Apple Inc.; DexCom, Inc.; Abbott Laboratories;
Splunk Inc. Front cover, source: Shutterstock

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