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Top 'internet of things' picks from Morgan Stanley

An employee checks a silicon wafer on the production line of Micron's plant in Asia.
Seokyong Lee | Bloomberg | Getty Images

After surveying more than 100 design engineers, Morgan Stanley told investors the "internet of things" trend will accelerate in the coming year and drive two semiconductor stocks higher.

The internet of things (IoT) is the shift toward adding internet connectivity to more objects and enabling communication with one another and to traditional networks. Some IoT applications include wearables, home automation, and smart metering in the industrial and auto markets.

"We see an inflection point for IoT. ... With any new technology, the hype phase typically leads the fundamental impact by several years, and IoT has been no different," Morgan Stanley's global semiconductor research team wrote in a note to clients Tuesday.

"But in our AlphaWise survey fielded in May 2016, 90 percent of designers said they are adding connectivity for IoT, pointing to an initial growth uptick in 2017 and a stronger inflection in 2018 (based on 12-18 month design cycle times)."

Morgan Stanley says microcontroller companies will benefit the most from the upcoming IoT ramp. A microcontroller (MCU) is a computing engine comparable to traditional computer processors, but is focused on simpler, specific tasks with greater power efficiency. The average selling price for an MCU is approximately $1 versus the $150 to $200 range for Intel computer processors.

Here are the two overweight-rated microcontroller semi stocks Morgan Stanley recommends on the IoT trend.