Internet of Things: Utopia? Horror Show? Both?
Comment of the Day

January 10 2014

Commentary by David Fuller

Internet of Things: Utopia? Horror Show? Both?

Here is the opening from this interesting and mildly amusing editorial from Bloomberg:

At the International Consumer Electronics Show in Las Vegas, an annual carnival of corporate hype and techno-hoopla, John Chambers, the head honcho at Cisco Systems Inc., described an emerging phenomenon in terms that were sensationalist even by Vegas standards.

“It will be bigger than anything that’s ever been done in high tech,” he said. “It will change the way people live, work and play.” And, oh yes, it’s a $19 trillion opportunity.

The phenomenon is commonly known as the Internet of Things. As more and more objects -- appliances and automobilestennis rackets and toothbrushes -- are wired with sensors and connected to the Internet and to other devices, they’re pulsing with new information and capabilities. Cisco has estimated that 25 billion devices will be connected to the Internet by next year, and 50 billion by 2020.

The potential benefits of this evolution are compelling. Yet as with every innovation of the digital era, it’s also fraught with perils -- many of which we haven’t even begun to think through.

Enthusiasts argue that connecting more and more objects will help bring the automation and precision of the digital world to bear on the inconveniences of the physical one. Consumers -- who can already buy communicative door lockspet collarsforksfitness monitorslight bulbsinhalersthermostats and so on -- might one day see their domestic routines unfold with Jetsons-like ease.

Retailers could use “smart” sensors to better organize their inventory and track performance data. Manufacturers could improve logistics, reduce waste and boost productivity. And city governments might benefit from smart roads that monitor congestion, trash cans that tell garbagemen when they’re full or parking meters that ping drivers when a spot opens up.

What could possibly go wrong?

David Fuller's view

The field of consumer electronics is all those things mentioned in the headline so discretion is required, particularly in terms of what is helpful and useful for children. 

The far more important story for investors is the industrialisation of the internet, a frequent topic on this site.

The more successful corporate Autonomies are the biggest beneficiaries of the accelerating rate of technological innovation which some of these companies also create.  The inventive process has no natural end, other than an appalling exogenous event such as a doomsday meteor or international nuclear war, both of which are highly unlikely and hopefully avoidable. 

Many of the most successful Autonomies are US multinationals but I would be wary of chasing their share prices today, if they look overextended on price charts and trade at fancy valuations.  This is a time to identify the companies which you would most like to buy following the next stock market correction.  Such events are periodic risks but also opportunities for those who gradually accumulate some cash reserves during the good times. 

Want an example?  I am sure you can think of many but for growth oriented investors, Google would be on my list of the most successful Autonomies.  However, it is currently overextended relative to its 200-day MA, trades at a somewhat pricy current p/e of 31.82 and has no yield.  I would want to see at least a retest of the rising MA.      

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