Some S&P/ASX 200 Index (ASX: XJO) shares are tapping into the trend that more devices are being connected to the Internet of Things. In other words, they are being connected to the 'cloud'.
Oracle explains that the Internet of Things is:
The network of physical objects—"things"—that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.
According to Telstra Group Ltd (ASX: TLS):
This number is forecast to reach 33.8 by 2025 amid growing demand for consumer Internet of Things (IoT) devices and applications, especially in the home. While enterprise or business IoT applications have attracted a lot of focus due to the size of the segment, McKinsey says "the value of B2C applications is growing quickly, spurred by faster-than-expected adoption of IoT solutions within the home."
Having said that, let's look at two ASX shares that are benefiting.
Altium Limited (ASX: ALU)
Altium is an ASX 200 tech share that provides electronic PCB design software (called Altium Designer) for a number of clients such as NASA, Space X, Tesla, Porsche, Toyota, Alphabet (Google), Cochlear Limited (ASX: COH), Microsoft, Monash University, Amazon.com, Apple and Disney.
The company points out that electronics are responsible for 40% of a new car's total cost. There are a wide variety of different smart products that didn't exist before, such as automated vacuum cleaners, drones, and every other industry you can think of.
Altium has a number of software offerings for clients.
Cloud platform Altium 365 connects the "electronics industry fragmented value chains to drive productivity and management production risk".
Electronic parts search engine segment Octopart "allows electronic designers to research parts availability and pricing while providing opportunity for component manufacturers to influence early design decisions."
Altimade provides "cloud based smart manufacturing that will improve productivity and manufacturing of electronics hardware and manage production risk and supply chain."
The ASX 200 share is expecting to grow revenue by between 15% to 20% to between $255 million to $265 million in FY23. By 2026, Altium is hoping to reach $500 million in 2026.
JB Hi-Fi Limited (ASX: JBH)
The level of technology in the products that JB Hi-Fi sells has changed quite a lot over the last decade and a half. Smartphones, smart fridges, smart watches, home security, drones, and so on.
I'd argue that JB Hi-Fi's earnings may be a little more defensive than it used to be because of the essential nature of technology in areas like work, education and entertainment.
The ASX 200 share is benefiting from Australia's growing population, which is adding to its potential customer base.
Management believes the company has four main competitive advantages: scale, a low-cost operating model, multi-channel capabilities (in-store, online and over the phone), and its people and culture.
For households wanting the latest technology, JB Hi-Fi could be one of the main players in selling it to Aussies. While sales may slow in the shorter term because of the economic impacts, the company has generated impressive long-term growth over time.
According to Commsec, the ASX 200 share is valued at 13 times FY24's estimated earnings.
