When we spoke on May 26, I noted that the whole field of robotics and artificial intelligence (AI) were not just things from science fiction novels; companies are using AI and robotics to produce real-world applications right now that could make you a lot of money.
If you invest in them today.
And software is just one part of the story here, which is why I want to look at the flip side of that investing coin – the hardware needed for software to run.
Specifically, I’m talking about robots.
The investment thesis has only improved since we spoke three months ago because there’s nothing like a global pandemic to put more emphasis on using intelligent machines wherever possible.
Doing so cuts down on the risk of infection for workers and can also add to the bottom line as a cost-saving measure.
So I believe that a recent forecast from market research company Mordor Intelligence showing a 25.4% yearly market growth through 2025 is too conservative.
Robots and Revenue
There’s no question the field of robotics is advancing at a quick pace.
Growing at 25% a year means the sector will double in sales twice through the end of 2025. At that point, based on Mordor’s forecast, we’re talking about a conservative market value of $158 billion.
And that forecast isn’t hard to believe because advances are happening on an almost daily basis.
Consider that a team of researchers from Cambridge and the Free University of Brussels recently created 3D-printed robotic hands that are soft, can sense touch, and can detect damage.
Even better, the bots can actually heal themselves if injured.
Meanwhile, scientists at the Georgia Institute of Technology have managed to 3D-print robots the size of ants. Controlled through sounds of a specific frequency, these tiny robots could one day detect changes in our bodies and even repair tissues.
While that’s still a little way off, other kinds of robots are being adopted by all kinds of businesses right now.
Logistics centers and warehouses in particular are rolling out robots, and FedEx Corp. (FDX) provides a great case study.
According to a recent story in The Wall Street Journal (WSJ), FedEx is trying to cope with the demand spike and protect its employees by using robots with arms that can mimic human movements.
Four of them have been installed at the FedEx WorldHub in Memphis, Tennessee, which is the world’s largest airfreight facility. Each clocks 8 hours a day of steady work, sorting around 1,300 packages an hour from bins onto a conveyor.
Though it’s still early innings, these bots are off to a strong start. They have an advantage because they’re equipped with computer vision and artificial intelligence.
The “eyes” are advanced cameras, much like the ones in new smartphones that have added depth perception.
The “brains” use machine learning and AI to learn on the job and adapt to unforeseen situations. “This AI gives existing robots and other machines a level of adaptability not before seen,” the WSJ notes.
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In fact, the story says the new flexibility and intelligence these bots have made “them able, for the first time, to replace humans in some of the most common jobs in warehousing and logistics.”
Now, let’s be clear. These robots aren’t coming for our jobs. Humans are much more adaptable, and at FedEx, humans are the ones receiving promotions to supervise the robots.
However, workers are in short supply, especially during COVID-19 restrictions. The FedEx Worldhub in Memphis alone currently has 500 job openings.
For retail tech investors, the field of robotics is busting at the seams with new developments, technologies, and innovations. But not every investment in AI is going to be worth your hard-earned money.
You need to separate the winners from the wannabes.
That’s why I continue to recommend the Robo-Stox Global Robotics & Automation Index ETF (ROBO). Holding 86 stocks, it covers the broad waterfront of this field.
Three of its holdings give you a glimpse into the fund’s investment approach.
Take a look:
- Aerovironment Inc. (AVAV) is perhaps best known for its drone work with the U.S. military, where it ranks as the sector’s top supplier to the Pentagon. Its Raven is the most widely used unmanned aircraft system in the world in no small measure because soldiers can launch it simply by throwing it into the air.
- Nvidia Corp. (NVDA) makes high-speed chips known as graphics processors. The firm has optimized these to handle the heavy computing requirements for artificial intelligence. That is a major driver for the field as cars, delivery bots, and those used in automation will need some form of AI to operate autonomously.
- iRobot Corp. (IRBT) is a world leader in robots for the consumer market. Its most famous product is the Roomba series of robot vacuums, so beloved that owners often name them and were upset when, for a time, iRobot would replace broken robots instead of repairing the ones that people had grown attached to. The firm also makes Braava robots that mop floors, Terra robots that mow lawns, and even the Root robots that teach kids to code programs.
Now, ROBO’s 0.95% expense ratio is higher than I generally like to pay. But I am making an exception here because this appears especially well-built to capture the field’s sizzling growth.
And it is greatly beating the broad universe of stocks. For the 5 years ended last month, ROBO gained 117.3%. That was 43% higher than the benchmark S&P 500.
In other words, with this one play, we get the safety of owning a group of stocks along with consistent market-beating performance that will help build your wealth automatically.
Cheers and good investing,
Michael A. Robinson