Artificial intelligence is revolutionizing many industries, and companies can't get enough of the technology. Many companies are investing heavily in artificial intelligence, and as a result, AI chipmakers are facing record demand.
While it's easy to focus on chipmakers and tech giants releasing AI tools for businesses, there's another area worth watching: Homeowners are increasingly using artificial intelligence to power their smart home devices, and it could be worthwhile for long-term investors to get on board with this trend.
What are AI smart home devices?
AI smart home devices aim to make homeowners’ lives easier, and just like OpenAI’s ChatGPT can process commands and provide relevant information within seconds, smart home devices can also respond to requests to improve productivity.
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Seamus Nally, CEO of TurboTenant, explains that the technology is not only interesting to real estate investors but also to homeowners. “As with most technology, from personal tech gadgets to cars to work environments, people are always looking for improvements,” he says. “From a real estate perspective, homes equipped with AI smart home devices are often seen as more valuable due to improved energy efficiency, increased security, and simply being more tech-savvy.”
Are AI smart home devices becoming more popular?
People are drawn to products and services that help them save time and money, and AI smart home devices meet both requirements and their capabilities are expanding.
New advances in generative AI and large-scale language models are breaking down barriers and potentially creating better products in the future. These innovations are exciting for consumers and investors.
Dev Nag, CEO and founder of QueryPal, explains why the industry is gaining momentum: “The global smart home market is predicted to grow from $93 billion in 2023 to more than $300 billion over the next six years, a staggering 20% annual growth rate. From voice assistants to learning thermostats, they are being adopted in the market for a variety of reasons, including convenience, zero-setup automation, energy (and) cost savings, personalization, and even security.”
As innovation continues to make these devices more accessible to consumers, investors have several opportunities to invest in this space indirectly and more purely, including:
AI chip maker stocks
Smart home devices need AI chips to operate efficiently, and the companies developing these devices are investing significant capital in chipmakers to ensure they have the most reliable chips available.
As demand for AI smart home devices grows, semiconductor companies that make useful chips will generate more revenue. Nvidia Corp. (ticker: NVDA) is leading the way in this regard, having recently surpassed Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOG, GOOGL) in market capitalization.
Chipmakers that produce AI chips are widely involved in the artificial intelligence industry. However, not all chipmakers produce AI chips that are used in various devices. Reviewing a company's recent earnings report can help you determine whether the company is deeply rooted in the AI industry or is just about to enter it.
Targeted real estate investment
Investors with more capital may consider purchasing a property and installing smart home devices to increase its value. Some real estate investors want to renovate and resell the property, and adding smart home devices could help them sell the property for a higher price.
You may also find that you find tenants who are willing to pay a higher rent by adding smart home devices to your property, and using smart home devices to improve your investment property can be tax deductible.
REITs (Real Estate Investment Trusts)
Real estate investment trusts (REITs) offer a simpler path to real estate investing. Instead of accumulating enough capital to purchase a property, you can invest in a portfolio of properties. REITs are more liquid than physical real estate and have their own advantages and disadvantages.
Investors can look for REITs that incorporate smart home devices into their properties. While this is admittedly an indirect exposure, improved productivity and profit margins for REITs translate into higher prices per share.
But you also need to consider the REIT's underlying business model: If a REIT's portfolio is declining in value and has a lot of vacancies, then a whole host of smart home tools won't do much good.
Prologis Inc. (PLD) is an industrial REIT focused on logistics real estate that's worth keeping an eye on right now. The company has a net-zero emissions goal and recently reached halfway to its 1 gigawatt solar power goal. Its Essential platform includes smart building technology aimed at improving operations. As of Feb. 20, 18 Wall Street analysts had rated Prologis a “strong buy,” with an average 12-month target price of 8.5% upside.
Big Technology
Apple Inc. (AAPL), Alphabet, and Amazon are some of the big tech companies that offer smart home devices and apps. While these companies continue to invest in the industry, you will receive a broad package if you buy any of these stocks.
Most Amazon investors are more interested in its e-commerce and cloud computing divisions than its smart home product line, while Alphabet investors will prioritize advertising and cloud computing, and most Apple investors will be focused on smartphone and software sales.
While many large technology companies offer investors exposure to the industry, none are focused solely on AI smart home devices.
Smart Home ETF
Some investment firms offer exchange-traded funds (ETFs) that include stocks related to the smart home industry. For example, VanEck offers the Smart Home Active UCITS ETF (CAVE.AS), which currently holds 45 stocks.
Some of the holdings in these types of funds don't have much to do with smart home devices and are only vaguely related at best, but these ETFs can adjust their holdings as the companies they invest in purely become publicly traded companies.
The path to public offering is less certain for AI smart home device companies, who may be acquired by a larger company before going public — a trend highlighted by Amazon's acquisition of Ring in 2018.
ETFs focused on this industry can provide some exposure, but be careful with expense ratios: VanEck's Smart Home Active UCITS ETF has an expense ratio of 0.85%.
Real Estate Management Stocks
An indirect way to invest in smart home devices is to target property management companies that are prioritizing smart building technology to boost their profit margins. Installing these devices could mean that the property requires less maintenance or is more energy efficient.
However, the use of smart building devices (or lack thereof) is one small factor among many other considerations to take into account. Before considering a smart device strategy, make sure the benefits to your company itself are definitely worth the investment.
Public Storage (PSA), the largest owner of self-storage facilities in the U.S., is one stock to look at in this category. The company's diversified portfolio of self-storage facilities and strong balance sheet make it a real estate stock to watch in 2024.
Cybersecurity Stocks
Cybersecurity stocks are plentiful on the stock market, and there are many tailwinds for future growth, including growing demand for smart home apps and devices.
One of the risks of AI smart home devices is that someone can hack into them. Opening your garage while you're on vacation is a convenient feature as long as you have control over it. But if a hacker gains control of your smart device, this feature can turn into a nightmare.
The technology companies that provide these devices are investing heavily in cybersecurity services. Cybersecurity software can keep intruders out of databases and ensure that AI smart home devices work as expected.
This dependency translates into ongoing revenue for cybersecurity companies: companies selling AI smart home products will continue to rely on cybersecurity companies to keep their customers' data safe.
Again, investors should consider a company's financials, growth rate, valuation, and other factors before investing in cybersecurity stocks.
Let’s take a look at Palo Alto Networks Inc. (PANW). The cybersecurity giant has a division focused on Internet of Things security. As of noon on Feb. 20, 29 Wall Street analysts at TipRanks.com have given PANW a “Strong Buy” rating and an average 12-month price target of $387.93, suggesting an upside of about 6% from the most recent closing price.