Investing in Robotics 2016: What’s Happening & Why

April 08, 2016

With sales of industrial robots continuing to spiral upwards, co-robots massing to take on logistics, and robot home companions setting sights on millions of households worldwide, investors are suddenly getting serious and on the prowl to make a killing or two or three or more.

But where to prowl first? Equities, pure-play equities, themed funds, ETFs…even motifs are out there.

Should you keep to your favorite industry? Automotive, medical, maritime, manufacturing, logistics, construction, infrastructure, mining, oil & gas, military, hospitality, consumer, airborne, security, and transportation. Not to worry, robots cut across every industry.

Not since Information Technology launched into industry, commerce, society and just about everywhere else has a technology arrived on the scene that has showed itself to be so pervasive, so powerful and so ready to change everything.

How and where are robotics investments showing themselves best?

Boston Consulting Group’s (BCG) The Robotics Revolution report predicts that growth in the global installed base of advanced robotics will accelerate from around 2 to 3 percent annually to around 10 percent annually during the next decade “as companies begin to see the economic benefits of robotics.” 

“In some industries,” the report continues, “more than 40 percent of manufacturing tasks will be done by robots. This development will power dramatic gains in labor productivity in many industries around the world and lead to shifts in competitiveness among manufacturing economies as fast adopters reap significant gains.”

BCG’s report goes on to say that a confluence of forces will power the robotics takeoff:  “The prices of hardware and enabling software are projected to drop by more than 20 percent over the next decade. At the same time, the performance of robotics systems will improve by around 5 percent each year.”

“As robots become more affordable and easier to program, a greater number of small manufacturers will be able to deploy them and integrate them more deeply into industrial supply chains. Advances in vision sensors, gripping systems, and information technology, meanwhile, are making robots smarter, more highly networked, and immensely more useful for a wider range of applications.”

Trend to lower prices in robots parallels the early 1990s sudden drop in global prices of computers and peripherals that preceded the 1997-2005 boom that recorded GDP of 2.9 percent. (See: Productivity in the Slow Lane? The Role of Information and Communications Technology, analysis by Federal Reserve’s J. Christina Wang and Alison Pearson. 

Short term

ARK Invest analyst, Sam Korus, expects to see continued investment in robotics companies over the next 12-24 months as “more people recognize the significant opportunity that exists.”

Between 2015 and 2025 ARK expects annual investment in all forms of automation could escalate from $11 billion to $185 billion, or at a compound annual growth rate of 32 percent.

Korus points to collaborative robot maker, Universal Robots, which recently reported 91 percent year over year top line growth and predicts that the market for collaborative robots is set to grow 50 percent annually.

Wage and demographic impacts on robotics adoption will be particularly strong in China.

“On the industrial robotics side, China only has a robot density (robots per 10,000 employees) of 36 compared to 478 in Korea. ARK expects that as industrial robots become less expensive and wages increase that the adoption of robots will accelerate,” adds Korus.

Sam Bouchard, CEO of Robotiq, designer and manufacturer of robot grippers and end-of-arm tooling, believes that we’re “just scratching the surface in what’s possible with robots.”

Bouchard expects investment levels to continue but predicts that we may see a shift “toward some models in which robots [act] as enablers for more complete solutions.”

For Bouchard, the success or failures of “highly visible companies” such as Jibo, Google, and Rethink Robotics will steer future investments and define the investment climate.

A recent Bank of America/Merrill Lynch report predicts that robots will be performing 45percent of manufacturing tasks by 2025, compared to just 10 percent today.

As the report puts it:

“We estimate the current robots and the AI solutions market at $153 billion by 2020, including $83 billion for robots, and $70 billion for AI-based analytics. Disruptive technologies will yield $14 to $33 trillion in annual economic impact by 2025 through cost reductions and efficiency gains.

Early adoption will be a key comparative advantage, while those that lag in investment will see their competitiveness slip.”

The growth of investment in robotics companies will “for sure” continue over the next 12-24 months, says Anders Billesø Beck, an expert in robotics from the Danish Technological Institute (DTI). 

“The drive in this field is very similar to the .com wave more than a decade ago. The industrial market is now ready to accept newer technologies than before and new products like the Universal Robots [founded in 2005; acquired by Teradyne (NYSE: TER) in 2015 for $350 million] have proven that technologies do not need to have existed on the industrial market for tens of years before they are reliable,” explains Beck.

The IFR predicts that by 2018, the global industrial robotics market will grow by 15 percent, while professional service robotics is expected to increase by 11 percent and personal service robotics by 35 percent.

By 2018 global sales of industrial robots will on average grow year on year by 15 percent—the numbers of units sold will double to around 400,000 units, with five markets (China, Japan, USA, South Korea and Germany) representing 70 percent of the total global sales volume.

Lux Research analyst Maryanna Saenko “absolutely” expects investment in robotics to continue growing over the coming years.

“The robotics market is still nascent and while funding in some areas may soon slow—drones for example are actually maturing rapidly—there is an entire universe of opportunities related to artificial intelligence, mobile robotics, social robotics, and industrial robots that are still ripe for innovation and investment.

“Some areas will be slow to take off, such as personal robotics which still have a long road of technology development ahead of them, others such as industrial inspection robots for roads, bridges, and other infrastructure have the ability to be successful businesses today,” says Saenko.

The International Federation of Robotics (IFR) predicts that by 2018, global sales of privately used service robots will increase to around 35 million units. Domestic robots (vacuum cleaners, lawn mowers, window cleaners etc.) will account for 25 million units at an estimated sales value of more than $12 billion. Added to that there are around nine million entertainment—and leisure robots with an estimated volume of $7.6 billion (2015-2018).

At the same time service robots for professional applications are expected to boom. The biggest markets in this segment are defense, agriculture and logistics. The IFR anticipates that by 2018 a total of over 150,000 units will be sold at a total value of around $20 billion US dollars.

By 2035, roughly half of the US labor force will be replaced by automation, according to ARK Invest’s 2015, The Future of Automation report.

The report predicts that automation will increase the value of labor per dollar output by 103 percent, adding $12 trillion to overall real GDP. The increased productivity enabled by automation will have a “profound” impact on economic growth, with real GDP per worker in the US double from $113,000 in 2013 to $236,000 in 2035, or at an annual rate of 3.4 percent.

In 2035, manufacturing will account for 13 percent ($31 billion) of the total spend on automation, while the retail sector is predicted to account for 11 percent ($26 billion). Meanwhile, ARK predicts that the accommodation and food services category will spend $24 billion, or around 10 percent of the total.

So, why invest in robotics?

A combination of elements makes robotics a unique and highly-promising industry to invest in, including:

• Robots are going mainstream;
• Smart investors are already investing in robotics;
• Dollar amounts invested are increasing year-on-year;
• Technology continues to improve at pace;
• Forecasts for industry growth are extremely positive; and
• Industry offers many exciting opportunities for high-yield, early-stage investments