These stocks are set to benefit from the 'smart cities' of the future, says Barclays

Published Sun, Oct 18 20206:48 AM EDT

(This story is for CNBC PRO subscribers only.) A massive smart infrastructure boom could be about to kick off as cities face growing pressure to become more resilient in the wake of Covid-19. Combined with escalating sustainability commitments and the need to support ongoing population growth, Barclays believes the necessary changes will require "unprecedented urban investment and innovation." The firm said the impacts will be felt across ten sectors, encompassing everything from software to construction to utilities. According to data from McKinsey, at least $3.7 trillion per year in infrastructure investment is needed from now until 2035 to support the expected growth of cities. "It has never been more crucial for both existing and new cities to be made smarter, more efficient and sustainable," Barclays said in a recent note to clients. The firm believes that the post-coronavirus mindset, greater attention on sustainability, new funding incentives and the development of key technologies will drive change. Using a broad definition for what constitutes a "smart city," and moving away from focusing solely on consumer-facing technologies, Barclays said investment opportunities lie in four key areas: Enabling technologies: 5G rollout, internet of things, etc. Building & construction: Intelligent building management systems, dynamic power consumption, etc. Energy: Smart grids, carbon management, etc. Waste & water management: Leakage detection, predictive maintenance planning, etc. Ultimately, the firm believes smart cities have the potential to generate $20 trillion in economic benefits by 2026, $10 trillion of which will be from a multiplier effect. The idea of a smart city is not, of course, new, and Barclays was quick to note that for lofty promises there's been little progress to date. But Covid-19 has provided a reset that will lead to greater change. "As cities are waking up from a prolonged lockdown, questions are being asked about how we can improve them more permanently," the firm said. "Digital solutions provide cities with a fresh set of tools to avert some of the great challenges we are now facing, particularly those on the sustainability agenda, including climate change, air pollution and rising social inequality." Semiconductors Semiconductors are crucial for urban transformation since they are the backbone of everything from communication infrastructure, including 5G, to more efficient building management systems. These technologies, in addition to real-time sensing, are often collectively referred to as the "internet of things." "In terms of semiconductor technology segments, Smart Cities require a proliferation of sensors, greater processing power and storage, faster and more expansive connectivity and improved power management," Barclays said. The firm expects Broadcom , Marvell and Qorvo to be among the communication infrastructure chip vendors that benefit from greater deployment of 5G across the world. In terms of companies working on real-time sensing, which Barclays expects to be a "steady, if gradual" adoption, the firm pointed to Analog Devices and Texas Instruments based on their leadership in the power management sphere. Software With an upswing in data collection, best-in-class cybersecurity will also be needed in order to ensure that the information is stored safely. "More data means a broader attack surface," Barclays noted. "From a consumer perspective, we think more prevalent data could prompt more need for identity monitoring." CrowdStrike and Palo Alto Networks are among the companies that will benefit. Multi-industry When it comes to multi-industry companies, Barclays believes that Honeywell and Johnson Controls International are "key beneficiaries" given their focus on pivotal areas of smart cities. The firm noted that each company is involved in smart devices that promote greater efficiency in buildings, controlling everything from temperature and lighting to building access. The two names are also involved in building management systems, which use machine learning and predictive models in order to optimize a building's system, thereby reducing total energy costs. - CNBC's Michael Bloom contributed reporting.

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(This story is for CNBC PRO subscribers only.)

A massive smart infrastructure boom could be about to kick off as cities face growing pressure to become more resilient in the wake of Covid-19. Combined with escalating sustainability commitments and the need to support ongoing population growth, Barclays believes the necessary changes will require "unprecedented urban investment and innovation." The firm said the impacts will be felt across ten sectors, encompassing everything from software to construction to utilities.

According to data from McKinsey, at least $3.7 trillion per year in infrastructure investment is needed from now until 2035 to support the expected growth of cities.

"It has never been more crucial for both existing and new cities to be made smarter, more efficient and sustainable," Barclays said in a recent note to clients. The firm believes that the post-coronavirus mindset, greater attention on sustainability, new funding incentives and the development of key technologies will drive change.

Using a broad definition for what constitutes a "smart city," and moving away from focusing solely on consumer-facing technologies, Barclays said investment opportunities lie in four key areas:

Enabling technologies: 5G rollout, internet of things, etc.
Building & construction: Intelligent building management systems, dynamic power consumption, etc.
Energy: Smart grids, carbon management, etc.
Waste & water management: Leakage detection, predictive maintenance planning, etc.

Ultimately, the firm believes smart cities have the potential to generate $20 trillion in economic benefits by 2026, $10 trillion of which will be from a multiplier effect.