Rapid technological improvements in robotics, Artificial Intelligence, machine learning and Internet of Things is automating things faster and faster. Though it is a boon for productivity, it may also make many workers redundant. Machines and robots will gradually replace mechanical and repetitive tasks performed by not only unskilled but white collar workers as well. Having said that, the Internet of Things (IoT) is a massive opportunity for technology companies. It is a way to connect the physical world to the internet and close the gap between these two. With IoT the world is looking at improving operations, increasing safety and security and gaining valuable insight on data. A recent Mckinsey report states that despite all the hype, the potential of the IoT industry may be understated. IoT has a total potential economic impact of $3.9 trillion to $11.1 trillion a year by 2025 equivalent to about 11% of the world economy.
Many technological giants are eyeing the opportunity and have already made major investments. Amazon.com Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT) have already started to introduce products and services in the IoT domain. Other corporate behemoths like Cisco Systems, Inc. (NASDAQ:CSCO), Intel Corporation (NASDAQ:INTC), QUALCOMM, Inc. (NASDAQ:QCOM), and General Electric Company (NYSE:GE) are also bullish on this industry. We have selected five top IoT stocks that ranked as the most popular among the hedge fund community.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.
Intel Corporation (NASDAQ:INTC)
Intel has given the IoT industry various products ranging from its Quark line for small-form factor appliances to Atom processors. It has developed all the pieces for an IoT suite such as processors, software, services and security. Results are already showing with the IoT segment showing the most rapid growth amongst all other segments. During the third quarter of 2016, the division generated $689 million showing a year on year growth of 19%.
Ken Fisher‘s Fisher Asset Management increased its total holding in the stock to 19.9 million shares worth $723 million, by buying an additional 124,178 shares during the third quarter. While Arrowstreet Capital reduced its stake in the stock by 6%, it still held 10.3 million shares worth $389 million. Richard Pzena’s Pzena investment Management also sold 761,851 shares but held 8.56 million shares worth $323 million at the end of September. Overall, during the third quarter, the total number of funds from our database long Intel Corporation (NASDAQ:INTC) increased to 68 from 57.
Cisco Systems, Inc. (NASDAQ:CSCO)
Cisco Systems, Inc. (NASDAQ:CSCO) provides a range of services varying from network connectivity to data storage, and analysis, and management, automation and security of data. According to the company, 95% of the business executives plan to launch an IoT business within three years. Its acquisition of industry leading IoT service platform Jasper during the last year further strengthened its IoT foot holding.
During the third quarter, Fisher Asset management bought 57,026 shares, increasing its holding to 15.58 million shares worth $471 million. Cliff Asness’ AQR Capital Management also bought an additional 1.38 million shares and held 13.33 million shares worth $422 million at the end of September. Though Arrowstreet Capital reduced its stake in the stock by 17% it still held 9.87 million shares valued at $313 million at the end of the third quarter. Overall, the hedge fund sentiment towards Cisco Systems, Inc. (NASDAQ:CSCO) improved during the third quarter, with the number of funds tracked by us bullish on the stock increasing by five to 66 and the value of their holdings also went up to $4.6 billion from $4.25 billion.
Microsoft Corporation (NASDAQ:MSFT)
Azure is Microsoft Corporation (NASDAQ:MSFT)’s cloud computing and IoT platform which was released in 2010. The Azure IoT suite supports various programming languages, allows device connections, data analysis and integration of business systems. In October 2016, the company announced the public preview of Microsoft Azure Analysis Services which provides enterprise-grade data modeling in the cloud. For its quarter ending September, the technology giant reported 116% improvement in Azure public cloud revenues year over year.
Fisher Asset Management acquired 78,699 shares during the third quarter, and held 18.4 million shares worth $1.1 billion at the end of September. AQR Capital Management also increased its holding by 8% to 14 million shares valued at $812 million, making Microsoft Corporation (NASDAQ:MSFT) its largest holding. Though Stephen Mandel’s Lone Pine Capital sold 2.7 million shares of the stock, it still held 14.5 million shares worth $836 million at the end of September. At the end of the third quarter, 126 funds from our system held shares worth $18.14 billion versus 131 funds holding $18.8 billion worth of stock in aggregate at the end of June.
Alphabet Inc (NASDAQ:GOOG)
Alphabet Inc (NASDAQ:GOOG) recently has announced a preview of Android Things, a new and comprehensive platform for the Internet of Things designed for developers. Android Things is basically a mature version of Google’s earlier Project Brillo which was also Android based. This platform uses “Weave” which is a cross-platform language that lets devices talk to each other and a number of major electronic device makers are already using Weave in their IoT products. Alphabet Inc (NASDAQ:GOOG) also bought Nest Labs in a multi-billion dollar deal which is pioneering products based on Internet of Things through its smart thermostats, fire alarms and security cameras.
During the third quarter, Viking Global bought 168,202 Class A shares increasing its holding to 1.96 million shares worth $1.57 billion and making it the third largest holding in its 13F portfolio. Ken Fisher’s Fisher Asset Management also bought 33,723 Class A shares and reported a total ownership of over a million shares worth $827 million. Stephen Mandel’s Lone Pine Capital also disclosed holding 843,449 Class C shares worth $655 million in its last 13F filing. According to our database, the number of funds long Alphabet Inc. (NASDAQ:GOOG)’s Class C stock increased by eight to 134 between July and September and the value of their total investment also appreciated by 18.6% to $14.22 billion. The aggregate value of holdings in Class A stock also went up by 28% to $14.78 billion and the number of funds long the stock increased by two to 137.
Amazon.com, Inc. (NASDAQ:AMZN)
Amazon.com Inc.’s (NASDAQ:AMZN)’s Amazon Web Services (AWS) is the biggest cloud provider in the world. Though Amazon is famous for its retailing, cloud computing and IoT are its fastest growing and most profitable segment. In the first nine months of 2016, AWS had an operating margin of over 25%. The Internet of Things platform was launched back in 2015 and enables users to connect devices, store and exchange data securely, and allows interaction between device and applications even when offline.
Amazon.com Inc (NASDAQ:AMZN) was the top pick of some of the largest hedge funds in the world including Viking Global Investors who had sold 349,679 shares during the third quarter and amassed a $2.45 billion position containing 2.92 million shares. Amazon.com, Inc. (NASDAQ:AMZN) was also the largest holding of D.E. Shaw, which disclosed a $905 million stake that contained 1.08 million shares in its last 13F filing. Two Sigma Advisers was also bullish on Amazon.com, Inc. (NASDAQ:AMZN), having acquired 67,547 shares and disclosing ownership of 356,601 shares valued at $298 million as of the end of September. Amazon.com Inc (NASDAQ:AMZN) was the most popular stock among the investors tracked by us, with 150 funds holding $20.79 billion worth of shares at the end of September, up from 145 funds holding $19.82 billion worth of stock at the end of June.