Why Don’t We Talk About This More?
I’m pretty paranoid about nails.
I can’t tell you how many times someone in my family ran over a nail that fell out of a truck and caused one of the tires to leak.
That’s why I place so much faith in my car’s sensors. They warn me if a tire might be low on air almost the moment I start the ignition.
Without it, I could easily be stranded on the highway.
Two major tire firms are taking that to the next level by adopting AI and sensors as a play on the $70 billion last-mile delivery market.
It’s all about making smart tires that can facilitate e-commerce deliveries.
The Microchip’s Thankless Cousin
Tragically, sensors get no respect.
Sensors are tiny devices that detect changes in their surroundings and generate signals based on them. For example, accelerometers in phones and smartwatches let those devices know when they’re moved, in what direction, and with what force.
Instead, everyone focuses on the global, almost $450 billion-sized chip industry. Especially now with the chip shortage that’s slowing down production of everything from cars to computers to phones.
Yes, chips power all our modern electronics. Which is just another way of saying that they power all modern life, really.
But sensors are just as important, and yet they’re largely unheralded – even though it’s a huge global market.
Nothing to See Here, just a Hundred-Billion Dollar Market
Allied Market Research estimates the sensor market was worth $166.7 billion in 2019 and projects it will balloon to $345.8 billion by 2028.
That’s a compounded annual growth rate of a whopping 8.9% for the next seven years.
It’s a no-brainer, really. Sensors are everywhere, from your phone, tablet, or smartwatch to your car to medical devices and even security hardware.
That makes them a standout example of my investing philosophy; to maximize our advantage in playing unstoppable tech trends in the market by focusing on the pick-and-shovel foundations that make the latest amazing gadgets work.
We can apply this principle to other innovations like the electric car, which relies on key resources and materials to make components like batteries. I don’t want to get too far off track, so, instead, I’ll be going over how to use this information to play the unstoppable EV trend right here.
Surprise! We Even Get an E-Commerce Play!
During Covid, e-commerce sales soared some 30%, according to data from the US Commerce Department. Nearly all of those goods had to be delivered to a home or business.
E-commerce would not be where it is today without dependable delivery vehicles, and sensors are vital to that dependability.
The e-commerce boom massively increased the amount of “last-mile” deliveries. That’s an industry term for the very last stage of delivery – getting your order from a nearby warehouse to your doorstep.
And that growth isn’t stopping. According to Gartner, the value of this “last-mile” delivery market will grow from $40 billion last year to $70 billion by 2025.
The trucks that handle this “last-mile” delivery get so much use that they can go through as many as four sets of tires per year.
To make sure this last step goes smoothly, Goodyear Tire & Rubber Co. and Bridgestone Corp. are both now deploying new sensor and AI technology to help delivery companies predict when tires will give out ahead of time, to ward off accidents, and allow companies to replace tires well in advance.
Goodyear’s tech is called SightLine- a modern update to an already existing and market-tested tech by the manufacturing titan.
SightLine has a series of sensors in the tire that measure pressure, wear, terrain, and so on. This data is then communicated wirelessly to an AI algorithm that predicts how much longer the tire will last.
This is much more powerful than the sensors in my Acura MDX Hybrid. They only let me know if a tire may be low on air, not if its tread is going bad or has uneven wear.
Meanwhile, Bridgestone’s tire tech offers a unique hook in “last-mile” delivery. The firm’s new system promises to alert owners when tires need to be retreaded – a much cheaper option than getting an all-new tire.
The One Sensor to Rule Them All
The sophistication of this technology is why the sensor market will grow so fast in the coming years. And the leader in sensors is STMicroelectronics N.V. (STM), better known as STMicro.
This Swiss-based tech manufacturer is anything but neutral.
One of the world’s great sensor firms, the international conglomerate is famous for their MEMS sensors. As I mentioned earlier, these are widely used in both personal electronics, to detect when the user takes a fall or climbs stairs, for example.
But they’re also common in cars, where its MEMS sensors detect rapid decelerations that come with emergency braking or a crash and determine whether to deploy an airbag, for example.
As ubiquitous as MEMS sensors are, STMicro has a whopping 50% market share on the global market for them.
Unrecognized Growth Potential
And with more than 18,000 patents on sensor technology, STMicro has established an immeasurable barrier to entry for any potential competitors.
In the industrial space, for example, where sensors are used to control robots and equipment, as well as test products, STMicro supplies just over 41% of the market.
In personal electronics, that share is a bit higher, at just over 44%. As for the automotive market, STMicro controls 28% of the market but that figure is forecast to hit 40% in the next two years.
Over the last three years, STMicro’s earnings per share growth lagged as the firm sought to revamp operations to increase efficiency.
Now it’s paying off. In the last quarter, STMicro reported earnings were up 68%.
That leads me to estimate they can double their per-share earnings in four years.
In short, STMicro is a great way to own a slice of a critical technology that can line your pockets.
Cheers and good investing,