Over the past few months some of the world’s largest hedge funds have been quietly investing in a little known corner of Silicon Valley.
Early estimates show this emerging industry could soon be worth over US$2 trillion—making it larger than 3D printing, the personal computer, and even the iPhone.
Now their bet is paying off. Many of the industry’s big players have just reported blowout earnings. And this might just be the beginning…
Wall Street insiders are ploughing millions into BlackBerry
Ken Griffin is one of the best stock pickers on the planet. In 1990 he founded the Citadel Investment Group. Since its inception, the fund has generated more than 35% returns annually for clients and today it’s one of the largest hedge funds in the world.
Because of his exceptional track record, I always pay close attention to what stocks Griffin is buying. And right now, he’s backing a new theme out of Silicon Valley called the Internet of Things, or IoT.
In essence, the IoT is simply the connection of everyday objects to the Internet. Today 99% of all things remain unconnected, but soon just about everything you own will be online. And in recent quarters Griffin has built huge stakes in companies on the front line of this revolution, such as IBM, F5 Networks, and Sierra Wireless.
He has also just picked up a new position. Last week SEC filings revealed that the billionaire investor boosted his stake in BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY). As of March Citadel owned a US$14.7 million position in combined shares and call options.
The disclosure is unexpected. BlackBerry is better known for its failing smartphone business, which has lost ground to rivals like Apple and Google. Over the past five years shares of the former Canadian tech giant have lost 80% of their value.
Source: Yahoo! Finance
But behind the scenes, new Chief Executive John Chen has been leading something of a turnaround. When Mr. Chen took over last year, investors feared BlackBerry would run out of cash. Since then he has slashed costs and raised much needed funds through asset sales, giving him plenty of financial flexibility.
Now, Mr. Chen has declared the Internet of Things as the company’s new strategic focus and the opportunity here could be huge. For instance, networking giant Cisco predicts that by 2020
- the number of connected devices will pass 50 billion, up 10-fold from today;
- the market for IoT services will grow threefold to more than US$2 trillion; and
- the data equivalent to every movie ever made will cross global networks each minute.
BlackBerry believes that reliably and securely storing this information represents the future. Right now, it’s hard to draw conclusions from the mass wall of data being collected. But if BlackBerry has its way, however, the company will become an aggregator, allowing businesses and individuals to distill this fragmented data into meaningful information.
The company’s QNX operating system is at the centre of all this. We have already seen the system prove its worth in the automotive and healthcare sectors. Leaning heavily on QNX’s proven capabilities, this early mover advantage should transition well to other industries.
If you don’t buy BlackBerry now, you’ll kick yourself later
Ken Griffin isn’t the only smart money investor betting on BlackBerry. A number of other hedge fund managers, including Irving Kahn, Jeff Buick, and Francis Chou have been accumulating positions. Billionaire investor Jim Simons has also disclosed a US$33.1 million stake in the stock.
What could have attracted the attention of these Wall Street insiders? I’d say it could mean only one thing: they see a big rally ahead.
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Fool contributor Robert Baillieul has no position in any stocks mentioned. David Gardner owns shares of Apple, Google (A shares), Google (C shares), and Sierra Wireless. Tom Gardner owns shares of Google (A shares) and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and International Business Machines. Sierra Wireless is a recommendation of Stock Advisor Canada.