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One of the strongest corners of the market this year has been the semiconductors industry. Throughout the chip-making market, companies have successfully adapted to the changing needs of the consumer, including an increased demand for small, high-powered chips that enable “Internet of Things” (IoT) devices.

For those that don’t know, the Internet of Things is the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.

For example, consumer-level IoT products include things like Amazon’s (AMZN - Free Report) Echo “smart speaker,” wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.

(Also Read: How to Invest in the "Internet of Things")

As demand for the microchips that power these IoT devices continues to grow, semiconductor manufacturers with a focus on IoT products will continue to benefit. With that said, we’ve found three already-strong stocks that are looking to benefit even more from further IoT growth.

1.       Cypress Semiconductor (CY - Free Report)

Cypress Semiconductor is a leading provider of high-performance digital and mixed-signal integrated circuits. Just last year, the company shelled out $550 million to acquire Broadcom’s Wireless Internet of Things business and now its “WICED” Platform is one of the largest IoT portfolios in the industry. The stock is currently sporting a Zacks Rank #2 (Buy), which pairs well with its “B” grade for Growth in our Style Scores system. Our current consensus estimates are calling for EPS growth of 65% this fiscal year, and that expansion is expected to continue with 41% EPS growth in the next fiscal year. Cypress also pays an impressive 3.20% dividend.

 

2.       Texas Instruments (TXN - Free Report)

Although you might recognize the brand because of its calculators, Texas Instruments is actually one of the leading suppliers of advanced semiconductors in the world. The company’s IoT profile falls under its Embedded Processors division, which includes the Connectivity, Microcontrollers, and Processors categories. In its most recent earnings report, Texas Instruments saw growth of 15% in its Embedded Processors segment, and that’s not to mention that it once again surpassed our consensus estimates for earnings and revenue. Texas Instruments is currently a Zacks Rank #2 (Buy), and on top of this, the company pays a nice 2.44% dividend.

 

3.       Microchip Technology (MCHP - Free Report)

Microchip Technology is a manufacturer of microcontroller, memory, and analog chips. The company is a leader in several IoT-related fields, including automotive and wireless connectivity. Right now, Microchip is a Zacks Rank #1 (Strong Buy), and we’ve seen multiple positive revisions to the company’s current-year and next-year earnings estimates. The stock also has an “A” grade for Growth. According to our current consensus estimates, Microchip is set to report earnings and revenue growth rates of 32% and 16%, respectively, this year. Microchip’s current cash flow growth is more than 57%, and the company pays a respectable 1.67% dividend.

 

Bottom Line

The Internet of Things is one of the most exciting emerging tech markets in the world. Home automation products are fun. In-car technology is cool.

And while these specific products are interesting, the real moneymakers in these situations are the companies that are building the tech that powers these products. The Internet of Things needs semiconductors to function, and as the IoT grows, so too will semiconductor companies.

The best way for investors to cash in on this growing trend is to identify semiconductor companies that are not only investing in the Internet of Things, but are also displaying solid fundamentals and impressive Zacks metrics.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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