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It’s easy to get excited by the ways “Internet of Things” technology is changing everyday life — but investors looking to put hard-earned money into IoT stocks need to keep a few things in mind.

The Internet of Things — commonly abbreviated as IoT — is a network that allows “dumb” devices like TVs, fridges, phones, and cars to communicate with each other using specialised software and hardware.

The technology can automate a wide variety of services such as helping with the care and treatment of sick patients and boosting crop and livestock yields for farmers.

There are more than a dozen ASX-listed companies offering exposure to IoT technology including stocks such as Traffic Technologies and Buddy that hope to play integral roles in the emergence of “smart cities”.

In June, Stockhead reported that the global IoT market would soon pass $1 trillion in value.

Up to a third of businesses have already invested in IoT technology while almost half will consider it in the coming years, a new Forbes article claims.

But a recent Digital Pulse report warns “businesses should not let the fun distract from the very real business case for IoT adoption.

“The data provided by connected devices, sensors and the cloud can, with the addition of AI, deliver valuable business insights,” says author Brent Gimpel.

“IoT projects need to be begin with the goal in mind, not the tech. With planning and the appropriate budgets and resources, they can be safe, cut costs and increase revenue.”

Here are nine things that will impact IoT stocks in the next few years, according to Brent Gimpel, PwC Australia’s head of IoT and Cloud Platforms:

1. The Internet of Things is about data, not things

“The value of IoT for enterprise is not in its sensors and connected devices, but what these can tell you about your business,” writes Gimpel.

“Enterprises need to go further to take advantage of this data including in analytics and artificial intelligence engines, as well as automated or mobile workforce applications. This is vital to convert new information into new decision-making capabilities, enabling new actions.”

BidEnergy (ASX:BID) is one IoT stock looking to benefit from this insight. The company sells an automated system that monitors a business’s energy spending.

Its share price has rocketed 622 per cent in the past year, from 1.8c to 13c.

BidEnergy shares (ASX:BID) have skyrocketed in the past year.

2. It isn’t all about sensors

“There is a common misconception that the Internet of Things just means splaying sensors everywhere,” Gimpel says. “Connecting physical assets is pointless without an overarching view of the business problem to be solve.”

Cattle tracker Sensera (ASX:SE1) makes its own IoT sensor chips and last year bought a “location awareness”  platform Nanotron — so it also owns the medium through which data is collected and transmitted. It’s investing heavily in the business and has recently raised money.

3. IoT is a business imperative, not a technology gimmick

“When considering what the technology could be used for your business, don’t think about the things that could be connected, think about the goals you want to accomplish and data that would help you achieve those ambitions.”

4. AI and IoT go hand in hand. 

“As dumb machines become smart with the addition of sensors, connectivity and robotics, the volume of data is going to grow exponentially – and with it, the need for AI to interpret it. Businesses will need to be fluent in both technologies.”

Catapult Group (ASX:CAT) combined AI with its wearable baseball product to provide baseball teams with early intervention to prevent injury.

The company’s shares are down 33 per cent year-on-year but it has comfortably the most valuable share price $1.10 and market cap at $212 million of any companies with exposure to IoT.

Antilles Oil & Gas (ASX:AVD)soon to be renamed HomeStay — recently acquired a business trying to combine AI technology with an Internet of Things platform to allow senior adults to stay in their homes longer.

5. IoT can cut costs and increase profit

“Real-time data information about business operations will allow organisations to make smarter decisions.”

Automated energy management is a focus for a number of ASX IoT stocks. Besides BidEnergy there’s also Simble Solutions (ASX:SIS), Building IQ (ASX:BIQ), Buddy Platform (ASX:BUD) and EnergyOne (ASX:EOL).

ClearVue (ASX:CPV) has gone a step further, incorporating energy-generating windows into the network.

6. IoT is about more than efficiency

“While it is often used primarily to improve efficiencies and cut costs, there are many other benefits that Internet of Things implementation can bring. These include better business insight, improved employee productivity, enhanced customer/user experience, competitiveness in the market, sustainability, and many more.”

7. IoT projects are not easy

“Businesses who start with the technology, rather than the end goal, often end up spending too much time, and too much money. IoT should be thought of as a whole of business transformation not an IT project, and implemented with the appropriate level of budget, governance, talent and advice.”

8. IoT security is not foolproof, so early planning is a must to manage risk.

“The latest PwC Global State of Information Security Survey 2018, found that companies are revamping their security policies and a key investment areas when it comes to IoT is in data governance and protecting consumer privacy.”

9. A Proof of Concept is desirable, but it depends on your industry.

“Whether or not you need a proof of concept, a simple business case or should just dive on in to implementation depends on where your company and industry as a whole sits when it comes to IoT maturity.

“Ultimately, whether a proof of concept will be right for you will depend on the resources available, including money and talent, the clarity of your vision, readiness of your business culture, and the robustness of the related products, services and talent available in your industry.”

Here is a table of ASX-listed small caps with exposure to IoT:

Scroll or swipe for full table. Click headings to sort

ASX codeCompanySix-month price changeOne-year price changePrice Nov 5 (intraday)Market Cap
CPVCLEARVUE TECH (listed May 2018)0.6750.6750.33533.1M
AVDANTILLES OIL / HOMESTAY (suspended)0.160.6111111111110.029-
BIDBIDENERGY2.256.222222222220.1388.9M
SKFSKYFII0.156251.846153846150.18555.5M
EOLENERGY ONE0.07344632768360.5079365079370.9520.2M
TTITRAFFIC TECH-0.0303030303030.1034482758620.03215.4M
CT1CCP TECH-0.0625-0.1666666666670.0156.6M
BUDBUDDY PLATFORM-0.12-0.6666666666670.11117.9M
CXZCONNEXION MEDIA-0.142857142857-0.60.0065.9M
CATCATAPULT GROUP-0.157088122605-0.337349397591.1212.8M
BIQBUILDINGIQ-0.206349206349-0.05660377358490.0512.5M
XPEXPED-0.25-0.6666666666670.0036.0M
SNSSENSEN NETWORKS-0.257142857143-0.1612903225810.1354.4M
SISSIMBLE SOLUTIONS (listed Feb 2018)-0.258064516129-0.4250.11511.9M
QFYQUANTIFY TECH-0.541666666667-0.8135593220340.0117.4M
SE1SENSERA-0.54954954955-0.6941896024460.125.6M
IOTIOT GROUP-0.75-0.90.0011.5M
CIOCONNECTED IO-0.8125-0.8750.0035.2M