During the pandemic, there was an incredible surge in home improvement. This isn’t a huge surprise. Since people were quarantined at home for months on end, they wanted it to be comfortable. Additionally, more time around the house freed up more time to fix the shutters and repaint the back room. In 2021, investors anticipate this trend going a step further. In anticipation, they’re contemplating adding smart home stocks to their portfolios.

It feels like the concept of a “smart home” has been around for a while. But, for many years, it just wasn’t a necessity. Why do you need to yell at the house to turn the air down when you can just click a button on the wall? However, thanks to improved technology at cheaper prices, the market might finally be reaching a tipping point. The global smart home market is currently valued at $79.13 billion. Over the next five years, it’s expected to grow at 25.3% CAGR to reach $313.15 billion.

Smart homes require a lot of different pieces. For example, they need some type of central portal or application where you can control everything. They also need internet-connected appliances for security, entertainment, HVAC, etc. In total, there are 6 main product categories for smart homes. These are comfort/lighting, control/connectivity, energy management, home entertainment, security, and smart appliances.

When it comes to identifying smart home companies, there are a few that have a distinct advantage. In this article, we’re going to take a look at the three best smart home stocks to buy.

NOTE: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions.

Top 3 Smart Home Stocks to Buy

No. 3 Amazon (Nasdaq: AMZN)

Amazon has a clear edge when compared to other smart home stocks. For starters, it’s Amazon. It spends more on research and development each year than most companies will earn in revenue. This gives it huge a leg up when it comes to creating and improving smart home technology.

Additionally, consumers already use Amazon for plenty of other services. People shop for goods on Amazon.com. They head to Amazon-owned Whole Foods to buy groceries. At the end of the day, they flop on the couch and turn on Amazon Prime. Amazon’s Echo acts as the central hub that connects all of these activities. Not to mention that the Echo only costs $60. This makes it more than affordable for most families. Amazon has already crossed the threshold of 100 million Alexa-powered devices sold.

The Echo itself isn’t necessarily what makes Amazon one of the best smart home stocks. It’s the ecosystem of services that Amazon provides that makes it so imposing.

In addition to its smart speaker, don’t forget that Amazon also owns Ring. Ring is a home security company that offers a wide range of products. It sells video doorbells, cameras, and digitally-controlled lighting fixtures. The acquisition was completed in 2018 for about $1 billion. All of Ring’s products are now compatible with Alexa.

Interestingly, Ring was on the brink of bankruptcy for a few years. It went on Shark Tank in hopes of raising money but was rejected. However, the airtime it received helped spread the word about its products. Just a few years later, it sold to Amazon.

Amazon’s stock is up approximately 3% in 2021. It’s also up 351% over the past five years.

No. 2 Alphabet (Nasdaq: GOOG)

Google falls into a very, very similar position to Amazon. First off, it’s a technology giant that offers tons of services. Its core business (advertising) creates tons of revenue to research and create new technologies. Finally, just like Amazon, Google has tons of complementary products. Its ecosystem isn’t quite as robust as Amazon’s but it still has plenty to offer consumers. All of this together makes Google one of the best smart home stocks to buy.

In 2014, Google made its own strategic smart home acquisition. It purchased the home security company Nest for about $3 billion. Now, Google has rebranded all of Nest’s technology under its own name.

Google Nest is Amazon’s closest competitor. It offers smart thermostats, doorbells, security cameras, alarms, and more. All of this connects well with Google Assistant. This means that you can use Google Assistant for things like searching online playing music, changing lights and security features.

If this section is starting to sound repetitive, that’s because it is. Amazon and Google are like the Nike and Adidas of smart home systems.

Google’s stock is up approximately 68% in 2021. It’s also up 270% over the past five years.

Best Smart Home Stocks No. 1 Alarm.com (Nasdaq: ALRM)

Alarm.com is one of the best smart home stocks to buy that’s not named Amazon or Google. Just like these two companies, Alarm.com offers a wide range of smart home products. It has solutions for security, lighting and temperature control. However, while Amazon and Google mainly target consumers, Alarm.com has a large suite of commercial solutions. This includes intrusion detection, smart locks and energy management.

In total, Alarm.com boasts 7.6 million subscribers, 100 million connected devices, and 200 billion data points collected.

Tapping into the Commercial Market

What’s interesting about Alarm.com is that it’s in a much better position to go after the commercial market. Google/Amazon seem more interested in helping consumers order groceries. Alarm.com, on the other hand, has a lot more to offer businesses.

To me, the use case for smart home technology seems much stronger for businesses than consumers. Businesses need much more robust security, HVAC management, and energy conservation than a single home does. Granted, this might be shifting now that remote work is slowly becoming the norm. However, it makes sense for a massive company that leases multiple buildings to bring all of its property management under one roof. Connecting these systems can save time, resources, and money. For consumers, smart home technology still seems like more of a “nice to have.”

Interestingly, according to Alarm.com, the commercial connected property market is not that much bigger than the residential one. Alarm.com expects the commercial market to reach $33.94 billion by 2024. On the other hand, it expects the residential market to reach $30.82 billion. Either way, Alarm.com sells to both markets.

Alarm.com’s business has grown impressively over the past few years. Since 2014, it has delivered a 24% CAGR in terms of revenue. More recently, it posted Q3 revenue of $192.3 which represented a 21% year-over-year (YOY) increase.

Alarm.com’s stock was down 18% in 2021. However, it’s up approximately 202% over the past five years.

I hope that you’ve found this article on the three best smart home stocks to buy valuable! As usual, please base all investment decisions on your own due diligence and risk tolerance.