3 Top Smart-Home Stocks to Buy in 2017

The world is becoming more connected every day.

One area where this can be seen is the trend toward smart homes. A growing number of internet-connected devices are allowing homeowners to control key systems -- such as lighting, heating, air conditioning, and security -- remotely by a phone or computer. In the midst of this growth, the major tech titans are battling to become the core platform upon which these smart home systems are built.

Read on to learn more about the three leaders of this emerging battleground.

The challenger

When Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google paid $3.2 billion to acquire high-tech thermostat maker Nest Labs in 2014, it was widely believed to signal an aggressive new push by Google into the burgeoning smart-home market. Yet several years later, Nest hasn't quite turned out to be the Trojan horse into people's homes that Google may have hoped. In fact, Reuters recently reported that Alphabet tried to sell Nest in 2016 but was unable to complete a deal.

Nevertheless, Google continues to expand its beachhead in the smart-home market. The company launched its Google Home  product in late 2016. The smart-speaker hub is powered by Google Assistant, which uses artificial intelligence to answer users' questions and voice commands.

Google's offerings have drawn strong early reviews. Notably, a recent test by digital brand agency 360i showed that Google Home is six times as likely to answer a user's question than Amazon.com's (NASDAQ: AMZN) Alexa. This is perhaps to be expected, as Google's technology has been strengthened by its nearly two decades of search experience and data collection. Google's expertise in these areas makes it a legitimate threat to Amazon, the current leader in the smart-speaker market.

The reigning king

Amazon commands a 70% share of the voice-enabled speaker-device market, according to eMarketer. Its Echo smart-speaker device had a nearly two-year head start on Google Home, and it used that time to build a sizable installed base of more than 15 million units sold, according to Consumer Intelligence Research Partners.

Echo is powered by Amazon's Alexa voice assistant, which integrates with more than 20,000 "skills," or voice-based apps. Amazon has also formed a host of partnerships with third-party smart-home device makers as well as retailers such as Kohl's to help boost distribution.

Amazon's smart-home products benefit from their prominent placement on Amazon.com, the most popular online retail site in the United States. They certainly seem to be deserving of such promotion; Alexa-enabled devices were the top-selling products across all categories on Amazon this past holiday season, with Echo sales surging more than 800% year over year.

With its commanding lead in the smart-home race, Amazon will be hard to beat.

The dark horse

Another competitor not to be taken lightly in the smart-home arena is Apple (NASDAQ: AAPL). Apple is attempting to counter Amazon and Google's speaker-centered smart-home strategies with its new HomePod device.

HomePod will feature Siri -- Apple's popular virtual assistant -- which should help it integrate well with the vast ecosystem of Macs and iOS devices already in use around the world. HomePod will also prominently highlight Apple Music, which offers access to 40 million songs, compared with only 2 million for Amazon's Prime Music. In fact, a major portion of Apple's competitive strategy rests on the superior quality of HomePod's speakers compared with that of Google Home and Amazon's Echo devices, as well as its spatial-awareness technology, which can identify where it is in a room and tailor the way it plays music to fit that particular space.

Apple is also hoping to that HomePod's user privacy aspects will help to further differentiate it from the competition. Unlike Amazon and Google, which plan to harvest user data from their products, Apple will use anonymous ID security so users' searches aren't tracked back to them. As privacy concerns rise, this could be an important advantage for Apple.

And Apple will need these advantages, as it is pricing HomePod at $349 -- significantly above the Echo's $179.99 and Google Home's $129. This high-quality premium strategy has worked many times before for Apple, but it remains to be seen whether it will work in the smart-home speaker market.

Still, Apple has shown -- first with the iPhone and later with the iPad -- that it doesn't have to be the first to enter a market to dominate it. While it will need to battle what are perhaps the two fiercest competitors it has ever locked horns with in Alphabet and Amazon, it's conceivable that the smart-home market could ultimately become another in a long line of Apple conquests.

All told, Alphabet, Amazon, and Apple are likely to rule the voice-controlled speaker market. And with these devices looking as if they will be the central hub of many connected-home systems, those wanting to invest in smart-home stocks may wish to consider these three tech titans.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has a disclosure policy.