3 Top Stocks to Invest in the Internet of Things

By Markets Fool.com

The notion of an interconnected world, encompassing homes, cars, and even entire cities, is quickly becoming a reality. Already, manufacturers are introducing "smart" cars, cities are outfitting transportation and buildings with futuristic sensors, and consumers can monitor their homes from virtually anywhere. Welcome to the onset of the Internet of Things, or IoT.

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It seems most every company is laying claim to IoT, from industrial manufacturers to the tech industry. The question for investors is: after sifting through the hype, what companies are truly poised to lead what is expected to become a multitrillion-dollar industry? Here are three IoT stocks worth monitoring as the world around us becomes increasingly connected.

Smart homes leading the way
Google
made a splash in February 2014 when it acquired smart thermostat and smoke alarm maker Nest for a whopping $3.2 billion. At the time, the price tag seemed a bit steep. After all, smart or not, it's a thermostat. Turns out, Google had much bigger plans for Nest's device than simply keeping consumers safe in their homes, and those plans have positioned it at the forefront of what is expected to become a huge industry.

This year alone, smart-home devices are expected to make up a quarter of the entire IoT market, generating an astounding $61 billion in revenue. And that pales in comparison to future estimates that suggest smart homes will become a $490 billion industry by 2019. And Nest has positioned Google as one of the leaders.

Nest is a lot more than a smart thermostat and air monitoring system -- at least it is now. Through an extensive, and ongoing, developer program and a key acquisition, Google has made Nest the hub for its entire smart home solution.A problem smart home device manufacturers face is how to get disparate systems like washers, thermostats, and security alarms, among others, to "talk" to each other. Google solved that problem with the purchase of Revolv, a networking device that allows for seamless communication among all smart home devices, and now it is leading the smart home race.

Managing reams of IoT data
An ancillary benefit of IoT for companies such asGoogle is amassing, analyzing, and ultimately using what will be an unprecedented amount of data. From consumers' driving habits to laundry frequency, IoT will require powerful data centers to fully maximize the value of all that information. That's where Intel enters the picture.

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Despite Intel's poor stock performance in 2015 --down about 14% year to date -- there is a beacon of hope for investors: its stellar data center group performance. When Intel announced earnings for fourth-quarter and fiscal 2014, many zeroed in on its PC unit's so-so results. But as it relates to IoT, particularly delivered via the cloud, Intel's data center division enjoyed a stellar quarter and year.

In 2014, Intel's data center revenue increased an impressive 18% over the prior year, and 25% in the fourth quarter compared to 2013. Why? Because CEO Brian Krzanich's focus on IoT and cloud data processing solutions are beginning to pay dividends, and that will continue as our world gets "smarter."

Smarter cities are here
An often overlooked aspect of IoT are smart cities. Commercial buildings, transportation,and monitoring air quality are just a few areas cities around the globe are beginning to implement IoT, and Cisco is at the forefront. According to Gartner, smart cities will account for over 1 billion connected "things" this year alone, and that figure is expected to climb to nearly 10 billion by 2020, eventually becoming a $1.7 trillion market, according to one estimate.

With each successive quarter, Cisco is gaining smart-city market share.In addition to recent partnerships with San Jose, Calif.; Kansas City; and Montgomery County in Maryland, Cisco has partnered with global behemoths including Hamburg, Germany; Santiago, Chile; and Barcelona, Spain, to develop a myriad of smart city solutions. According to CEO John Chambers, last year's record revenue was due, in large part, to Cisco's IoT efforts.

The age of IoT is upon us, and the revenue possibilities for early adopters are staggering. Be it a smart home, compiling reams of data, or making the world's cities smarter, Google, Intel, and Cisco are leading the charge, and long-term investors will reap the rewards.

The article 3 Top Stocks to Invest in the Internet of Things originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems, Gartner, Google (A shares), Google (C shares), and Intel. The Motley Fool owns shares of Google (A shares) and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.