Cisco Systems, Inc. (NASDAQ:CSCO) stock is performing better than most tech stocks so far this year. CSCO stock is up about 17% year-to-date, largely on news of reporting better-than-expected fiscal second-quarter results, a dividend hike, and a stock buyback program.
If you’re kicking yourself for not getting in on CSCO stock before earnings, don’t fret. Cisco is betting big on a young market that has the potential for explosive growth. If Cisco gets this right, its stock could soar over the next few years.
Let me explain…
The Internet of Things
The “Internet of Things” (IoT) is basically the concept of connecting devices to the Internet and, therefore, to one another. This includes everything from cellphones to coffee makers, washing machines, thermostats, lamps, TVs, wearable devices, cars, drones, and just about anything else that you can think of.
The potential for this new, growing market is enormous. Cisco predicts that 50 billion devices and objects will be connected to the Internet by 2020. (Source: “Internet of Things (IoT),” Cisco Systems, Inc., last accessed March 1, 2016.) According to International Data Corporation (IDC), the global Internet of Things market will expand from $655.8 billion in 2014 to about $1.8 trillion in 2020—an annual growth rate of 16.9%. (Source: “Explosive Internet of Things Spending to Reach $1.7 Trillion in 2020,” International Data Corporation, June 2, 2015.)
With all those devices connected to the Internet, Cisco stands to benefit enormously as it is one of the world’s largest developers of routers and switches making sure that Internet traffic flows smoothly across all devices.
But Cisco isn’t just predicting what the IoT will become. In early February, the company made a big splash into the market by purchasing Jasper Technologies, Inc., an IoT platform company, for $1.4 billion. Jasper provides customers with a cloud-based way to connect their IoT devices to the Internet, and then manages those connections through the company’s software as a service (SaaS).
Cisco will be using Jasper to tap into the strong network of large businesses that use the company’s services. Companies such as Starbucks Corporation (NASDAQ:SBUX), General Motors Company (NYSE:GM), BMW (ETR:BMW), Garmin Ltd. (NASDAQ:GRMN), and Heineken N.V. (AMS:HEIA) use Jasper’s services.
Cisco said that it plans to build on the Jasper IoT service platform and will also build new IoT services, such as enterprise WiFi, security for connected devices, and advanced analytics that will help manage device usage. (Source: “Cisco Announces Intent to Acquire Jasper Technologies, Inc.,” Cisco Systems, Inc., February 3, 2016.)
The Bottom Line on CSCO Stock
The acquisition of Jasper nicely sets up Cisco for the IoT market. Cisco can continue to grow its traditional hardware segment, while also growing the IoT software segment. Now Cisco will be able to sell software services along with its hardware. If Cisco gets the acquisition with Jasper right, expect CSCO stock to soar over the next few years.