We recently compiled a list of the 12 Best Internet of Things Stocks To Buy According to Analysts. In this article, we are going to take a look at where Alarm.com Holdings, Inc. (NASDAQ:ALRM) stands against the other IoT stocks.
Trends and Outlook for The Internet of Things Industry
According to the IOT analytics, 2024 was a poor year for the Internet of Things sector, particularly due to the headwinds from the hardware sector. As per the report published on January 15, many IoT-centric industries experienced stunted year-over-year growth. The industrial software market grew 12% year-over-year, slightly slower than the growth in 2023, whereas the industrial hardware industry experienced market declines. However, despite the slowdown the number of IoT connected devices grew around 13% year-over-year, surpassing 18 billion. In addition, the expertise spending related to IoT also increased by 10% year-over-year to reach $298 billion in 2024. The report also highlighted that the discussion on IoT remained high among leading CEO’s of the technology industry. The public relevance of the term Internet of Things remained within 30% of its all-time high in 2022.
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Moreover, another report by McKinsey & Company states that IoT can offer significant economic value potential. The report highlights that IoT can unlock $5.5 trillion to $12.6 trillion in economic value by consumer IoT products and services. McKinney & Company predicts that the most economic value of the technology will come from its deployment in industrial environments including manufacturing, health care, and other areas. Factory setting is expected to be the largest beneficiary by generating around $1.4 trillion to $3.3 trillion by 2030, or 26% of the total value. Lastly, the perceived value of IoT, the technological advancements, and the emergence of 5G in Networking are anticipated to be the prominent tailwinds for the sector.
Our Methodology
To compile the list of the 12 best Internet of Things stocks to buy according to analysts we used the Global X Internet of Things ETF. Using the ETF we aggregated a list of IoT stocks with positive analyst upside potential (at least 10%), sourced from CNN. Lastly, we ranked the stocks in ascending order of the analyst upside potential. Please note that the data was retrieved on Monday, 17th February, 2025.
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A view of a control room with video screens monitoring multiple sites through intelligent automation.
Alarm.com Holdings, Inc. (NASDAQ:ALRM)
Analyst Upside Potential: 19.90%
Alarm.com Holdings, Inc. (NASDAQ:ALRM) provides commercial and residential security systems including sensors and video cameras for surveillance. Their technologies can be monitored through onsite panels and mobile phones making the company a critical player in the Internet of Things industry. According to The Brown Capital Management Small Company Fund, there are around 29 million professionally monitored residential alarm systems in the US and around 8 million of these use Alarm.com Holdings, Inc. (NASDAQ:ALRM), thereby making a 28% market share for the company.
The company generates revenue through monthly subscription fees and other service fees from premium features. It has been enhancing its products and services using artificial intelligence. For instance, AI-powered capability cameras can distinguish animals from humans and also differentiate owners’ cars from unknown vehicles in the garage, thereby reducing the instances of false alarms. The fund in its third quarter investor letter noted that Alarm.com Holdings, Inc. (NASDAQ:ALRM) has already established its market leadership in the US and is now penetrating other growth areas that now account for over 25% of its revenue. Its interactive security services along with its advancement in the use of AI make it one of the best Internet of Things stocks to buy according to analysts.
The Brown Capital Management Small Company Fund stated the following regarding Alarm.com Holdings, Inc. (NASDAQ:ALRM) in its Q3 2024 investor letter:
“Alarm.com Holdings, Inc. (NASDAQ:ALRM) is a provider of residential and commercial security systems. The company provides interactive alarm systems including sensors and video cameras that can be monitored and operated from a panel on-site or remotely from mobile devices. Alarm.com also offers productivity tools for the alarm dealers who sell and install the company’s products. There are roughly 29 million professionally monitored residential alarm systems in the U.S., 8 million of whom use Alarm.com, resulting in a 28% market share. The company receives a monthly subscription fee from customers for the system, as well as additional fees for the use of video cameras and other premium features. Alarm.com continues to develop new products and is introducing artificial intelligence (AI)-powered capabilities to provide contextual information about alarm-related events, which can optimize responses. For example, a camera can identify movement as human vs. animal, or distinguish a homeowner’s car in the driveway from an unknown car, thereby minimizing false alarms. The company’s growth initiatives include increasing the adoption of video cameras, as well as value-added video-AI capabilities.
During the quarter, Alarm.com reported revenue that was above expectations and raised revenue guidance for the upcoming quarter and for the full year. SaaS and license revenue increased 11% but was partially offset by hardware revenue which declined by 7%. However, profitability expectations were decreased primarily due to the company recently undertaking a debt offering. Having already established a leadership position in the U.S. residential alarm market, Alarm.com has been increasing its penetration into other growth areas that now account for over 25% of its revenue. These include the U.S. commercial alarm market, EnergyHub (smart thermostat/connected home) applications, as well as initiatives in international markets. Alarm.com remains the dominant provider in the interactive security market, and we believe its continued strength and innovation can support its growth for years into the future.”
Overall ALRM ranks 5th on our list of the best IoT stocks to buy according to analysts. While we acknowledge the potential of ALRM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ALRM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.