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Investing in Internet of Things stocks

Growth projections are impressive, but the technology isn’t a necessity for most consumers.

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The Internet of Things is a concept that’s expanding rapidly, evolving into a whole range of devices like washers and thermometers that “talk” to one another over the Internet. But investors should be wary of emerging data regulations before they invest.

What is the Internet of Things?

The Internet of Things (IoT) refers to a network of physical devices capable of connecting to the Internet. Many of us use this network every day, from streaming music through wireless headphones to adjusting the thermostat of our homes with a mobile device. Wearable technology, automated vehicles and smart devices all belong to the Internet of Things.

Popular Internet of Things devices include:

  • Amazon Echo
  • August Smart Lock
  • AWS Snowcone
  • Fitbit
  • Google Home
  • Nest Smoke Alarm
  • Ring Doorbell
  • WeMo Insight Smart Plug

Internet of Things stocks are from companies that design or produce Internet-connected hardware and software. You can invest in the IoT by purchasing individual stocks or exchange-traded funds.

Why invest in Internet of Things stocks?

The Internet of Things is considered a growth industry with numerous consumer, commercial and industrial applications. Automation is the name of the game for many subsectors of the tech industry as consumer demand for autonomous tech rises.

The global market for Internet-connected end-user solutions hit $100 billion in market revenue in 2017, according to Statista. And it’s forecast that by 2025, the industry will be worth $1.6 trillion. B2B market research suggests a compound annual growth rate of 26.9% for the IoT sector from 2017 to 2022.

Smart technology is growing rapidly, and IoT stocks give investors the chance to back a fast-paced sector with promising growth projections.

Risks of investing in the Internet of Things

Economic downturn can impact the viability of businesses that produce or sell consumer goods. After all, if consumer spending declines, so do profits. A large chunk of the IoT industry comprises electronics that are new enough for consumers to consider luxurious novelties — not necessities. This sector’s growth could be affected by even a mild recession.

Another major concern for investors is data privacy and security. This technology is evolving, and emerging data-protection legislation may damper the industry’s progress. As we continue to explore the role of this technology in our everyday lives, tightening data regulations and more robust privacy protections may force tech companies to rethink how Internet-connected devices access consumer data.

Tech companies are far from immune to government jurisdiction. Emerging regulations could force companies back to the drawing board to amend their software, delaying product launches and affecting existing product lines.

Internet of Things stocks

To purchase Internet of Things stocks, prepare to invest in semiconductors, sensors, processors, chips, Bluetooth technology and smart devices.

What ETFs track the Internet of Things category?

For those seeking a less targeted and more diverse approach to investing in the Internet of Things, ETFs may be worth considering. There are a number of ETFs that track some of the major players on the IoT scene. These ETFs include:

  • Invesco NASDAQ 100 Index ETF (TSX: QQC-F)
  • iShares S&P/TSX Capped Information Technology Index ETF (TSX: XIT)
  • First Trust NASDAQ Technology Dividend Index Fund (NasdaqGM: TDIV)
  • SPDR NYSE Technology ETF (NYSEArca: XNTK)

There is only one ETF that specifically tracks IoT stocks: the Global X Internet of Things Thematic ETF (NasdaqGS: SNSR). This fund has more than $231 million in total assets and tracks many big names in the IoT sector, including Garmin, Qualcomm and Vivint Smart Home.

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Bottom line

Internet-connected technology is growing at an impressive rate, with global market projections on track to crack USD $1 trillion by 2024. But the industry relies on consumer spending, and the technology isn’t yet a necessity for consumers — yet.

Explore your brokerage account options with multiple providers to find an account best suited to your investing needs.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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