Artificial intelligence is revolutionizing many industries, and corporations can’t get enough of the technology. Many firms are making big investments in artificial intelligence, which has resulted in AI chipmakers seeing record-breaking demand.
While it’s easy to focus on chipmakers and tech giants releasing AI tools for businesses, there’s another segment worth monitoring. More homeowners are using artificial intelligence to enhance their properties’ smart home devices, and jumping on this trend may be worth the ride for long-term investors.
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What Are AI Smart Home Devices?
AI smart home devices aim to make a homeowner’s life easier. Similar to how OpenAI’s ChatGPT can process commands and offer relevant information in seconds, smart home devices can also fulfill requests and increase your productivity.
As Seamus Nally, CEO of TurboTenant, explains, this technology is interesting to real estate investors as well as homeowners. “As with most other technologies — from our personal tech gadgets to our vehicles, to the setup of our workplaces — people are constantly on the lookout for improvements,” he says. “From a real estate perspective, homes with AI smart home devices are often viewed as more valuable, for reasons such as greater energy efficiency, enhanced security and simply the tech-savviness of it.”
Are AI Smart Home Devices Getting More Popular?
People will gravitate toward products and services that help them save time and money. AI smart home devices check both of those boxes, and their capabilities are growing.
New advancements in generative AI and large language models are challenging barriers and can result in better products in the future. These innovations are exciting for consumers and investors.
Dev Nag, the CEO and founder of QueryPal, explains the growing momentum behind this industry. “The global smart home market is projected to grow from $93 billion in 2023 to over $300 billion in just the next six years, for a blistering annual growth rate of 20%. From voice assistants to learning thermostats, they’re being adopted by the market for a variety of reasons: convenience, automation without the setup, energy (and) cost savings, personalization and even security.”
Innovations are continuously making these devices more accessible to consumers. Investors have several indirect and more pure-play opportunities to invest in this vertical, including the following:
— AI chipmaker stocks.
— Targeted real estate investments.
— REITs.
— Big Tech companies.
— Smart home ETFs.
— Property management stocks.
— Cybersecurity stocks.
AI Chipmaker Stocks
Smart home devices need AI chips to run effectively, and the companies that create these devices invest significant capital in chipmakers so that they can get the most reliable chips.
As demand increases for AI smart home devices, semiconductor firms that produce viable chips will generate more revenue. Nvidia Corp. (ticker: NVDA) has been a front-runner in this regard and recently surpassed Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOG, GOOGL) in market capitalization.
Chipmakers that create AI chips offer broad exposure to the artificial intelligence industry. However, not every chipmaker produces the AI chips used in a wide array of devices. Checking the company’s recent earnings report can help you determine if the firm is deeply ingrained in the AI industry or trying to get a foot in the door.
Targeted Real Estate Investments
Investors with more capital may want to consider buying real estate and installing smart home devices in the property to enhance its value. Some real estate investors may want to fix and flip properties, and adding smart home devices can help them sell the property for a higher price.
You might also find tenants who may be willing to pay higher rent because of additional smart home devices in the property. The smart home devices can become tax write-offs if you use them to improve an investment property.
REITs
Real estate investment trusts, or REITs, offer a simpler path to real estate investing. Instead of accumulating enough capital to buy a property, you can get exposure to a portfolio of properties. REITs are more liquid than physical properties and have their own set of pros and cons.
Investors can look for REITs that incorporate smart home devices in their properties. Though this is admittedly indirect exposure, any improvements in productivity and margins for the REIT will translate into a higher price per share.
However, you must also consider the REIT’s underlying business model. A bunch of smart home tools won’t do much good if the REIT’s portfolio is losing value and has many vacancies.
Prologis Inc. (PLD) is an industrial REIT that specializes in logistics real estate and is worth a look now. The company has set a net-zero emissions goal and recently hit the halfway mark on its solar energy generation target of 1 gigawatt. Its Essentials platform includes smart building technologies that aim to improve operations. Eighteen Wall Street analysts have a “strong buy” rating on Prologis with an average 12-month price target representing 8.5% upside as of Feb. 20.
Big Tech Companies
Apple Inc. (AAPL), Alphabet and Amazon are some of the Big Tech companies that offer smart home devices and apps. These companies continue to invest in the industry, but you will receive a broad package if you buy any of these stocks.
Most Amazon investors are more preoccupied with the company’s e-commerce and cloud computing divisions than its smart home product line. Alphabet investors will prioritize advertising and cloud computing, while most Apple investors will look at smartphone and software sales.
Although many Big Tech companies give investors exposure to the industry, they aren’t pure plays for AI smart home devices.
Smart Home ETFs
Some investment firms offer smart home exchange-traded funds, or ETFs, with a basket of stocks with exposure to the industry. VanEck, for example, offers the Smart Home Active UCITS ETF (CAVE.AS), which currently has 45 holdings.
Some of the holdings in these types of funds don’t have much to do with smart home devices and are vaguely connected at best. However, these ETFs can adjust their holdings as pure plays become publicly traded companies.
The path to the public markets isn’t as certain for AI smart home device companies, since a large corporation can buy them out before they become publicly traded. Amazon’s acquisition of Ring in 2018 demonstrates this trend.
An ETF specializing in this industry can offer some exposure, but watch out for expense ratios. VanEck’s Smart Home Active UCITS ETF has an expense ratio of 0.85%.
Property Management Stocks
An indirect way to invest in smart home devices is to target property management firms that make smart building technology a priority to increase their profit margins. A property may require less maintenance or be more energy efficient once these devices get installed.
However, smart building device use (or lack thereof) is one small factor to examine in a wide range of considerations. Be sure the company is a solid investment on its own merits before taking any of its smart-device strategies into consideration.
Public Storage (PSA), the largest owner of self-storage facilities in the U.S., is a stock to research in this category. Its diversified portfolio of self-storage facilities and healthy balance sheet make it a real estate stock to watch in 2024.
Cybersecurity Stocks
Cybersecurity stocks are plentiful in the stock market and have many tailwinds supporting future growth, including the rising demand for smart home apps and devices.
One risk with AI smart home devices is that someone can hack into them. Opening your garage while on vacation is a cool feature as long as you are in control. This same feature can turn into a nightmare if a hacker gains control over your smart devices.
Tech companies offering these devices invest heavily in cybersecurity services. Cybersecurity software can keep intruders out of your database and ensure that AI smart home devices work the way that they should.
This reliance translates into recurring revenue for cybersecurity firms. Corporations selling AI smart home products will continue to rely on cybersecurity firms to keep their customers’ data safe.
Again, investors should look at a company’s financials, growth rates, valuations and other factors before initiating positions in cybersecurity equities.
Take a look at Palo Alto Networks Inc. (PANW). This cybersecurity powerhouse has a segment focusing on Internet of Things security. As of midday on Feb. 20, 29 Wall Street analysts on TipRanks.com gave PANW a “strong buy” rating with an average 12-month price target of $387.93, representing about 6% upside from its most recent closing price.
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7 Ways to Invest in AI Smart Home Devices originally appeared on usnews.com
