Robotics: Five Reasons to Invest

Sixty years ago, the first industrial robot began working on an automobile assembly line in the U.S. state of New Jersey. Shaped like a giant heavy-lifting arm, it unloaded metal automobile parts from a die-casting press. Today, robots are no longer only found in factories, but are increasingly integrated into our daily lives. All indications are that the robotics industry has entered a new, more dynamic phase of its evolution.

Technological advances, whether in artificial intelligence (AI) or ever smaller and more powerful semiconductors, are paving the way for the development – and adoption – of a new generation of sophisticated machines. At the same time, labor shortages, an aging population and declining productivity are driving demand for automation.

For investors, this represents a very attractive opportunity that is underpinned by strong secular growth trends and goes beyond robots themselves. We anticipate these to be the five key themes that will drive the sector in the coming years.

1. Relocation and Shifting Production to Nearby Countries

Supply bottlenecks produced during the COVID-19 pandemic highlighted the dangers of relying on distant countries for manufacturing. Geopolitical tensions between the U.S. and China and the war in Ukraine added further pressure to global supply chains. As a result, governments and companies are increasingly interested in moving production to their home territories or at least to nearby countries, known as “re-shoring” and “near-shoring”. This should stimulate demand for industrial robots to work in these new factories, as well as for other automation equipment and software solutions. According to a recent survey by ABB Robotics, about 41% of US manufacturers intend to increase their automation[1].

The semiconductor sector is one of the main targets of the relocation trend, due to the increasingly essential nature of semiconductors and other related technologies, as well as national security concerns. The construction of semiconductor fabs is one of the main targets of Washington’s USD 550 billion federal infrastructure spending package, and similar incentives have also been approved in other countries and economic unions.

Fig. 1 – Global annual supply of industrial robots, ‘000 of units

Source: World Robotics, 2023. Data covering period 01.01.2016-31.12.2022; forecasts for 2023-2026.

2. Man plus machine: industrial cobots

Assembly-line robots may have been a staple of industry for a long time, but those that work autonomously while working closely with people are just starting to take off. The global market for cobots is expected to reach USD 6.8 billion in 2029, up from USD 1.2 billion in 2022, which equates to a compound annual growth rate (CAGR) of approximately 34%[2]. We anticipate that severe labor shortages, wage inflation, and improving and cheaper technology will drive demand for this type of robotic technology. Cobots are becoming especially popular among small and medium-sized enterprises (SMEs) and electric vehicle manufacturers.

Fig. 2 – Cobots’ share in total industrial robot installations, %

Source: World Robotics, 2023. Data covering period 01.01.2017-31.12.2022.

3. Efficient software

The growth of automation – whether in the home or in industry – depends on software. Historically, industrial software operated on a buy, install and use-forever model. Today, it is increasingly moving to a software-as-a-service (SaaS) model, whereby companies pay a subscription fee to use the software, which is stored in the cloud or in a hybrid environment. The industrial software market could more than double to over USD 250 billion by 2027, representing a CAGR of 15%[3]. This should translate into increased efficiency across the entire process, from product design and simulation to prototype shipment to the factory or manufacturing partner, to supply chain optimization. Cloud-based solutions help reduce the cost and complexity of managing the software itself and allow data to be centralized. In addition, data analytics is growing in strength as more and more data is generated. Business process automation, whereby companies use software solutions to increase the productivity of administrative workers, is also gaining popularity. In addition, advances in AI are enabling companies to employ large amounts of data to improve operational efficiency.

4. AI and computation

As machines become more sophisticated, they need more processing power to compute and process data. AI is resource-intensive, requiring large amounts of data and processing power to create new content. That leads to the need for more sophisticated semiconductors. Computer processor manufacturers seem to be the logical beneficiaries of AI expansion, but Large Language Models (LLMs) also require other types of chips. Memory, computing and storage semiconductors account for the lion’s share of semiconductor sales. Memory (“DRAM”) and storage (“NAND Flash”) chips are primarily used to store data and instructions, while processing chips (such as a computer’s main “CPU” or a complementary accelerator chip such as a “GPU”) are used to perform calculations and process data in real time. Also important in the semiconductor sector are electronic design automation (EDA) companies, such as Synopsys, which provide software solutions for chip designers. The level of innovation and the incorporation of AI into software enable chip designers to accelerate the design phase and improve computational power efficiency. In addition, AI advances should boost the prospects of semiconductor equipment companies. These provide the chip fabrication tools that produce smaller, faster, cheaper, more powerful and energy-efficient microchips.

5. Autonomous driving

Driverless cars, trucks and buses are still some years away from being viable for the mass market. However, real-world testing is already underway around the world. Waymo, owned by Alphabet, for example, has racked up millions of miles on public roads (and billions more in simulation), and has been offering driverless rides to San Francisco residents for more than a year. In addition, autonomous vehicles have already become, in part, a reality thanks to the inclusion of various aspects of advanced driver assistance system (ADAS) technologies in the latest car models. Demand for semiconductors should skyrocket as these become more common and advanced. According to a Gartner study, each car is expected to contain $1,550 worth of semiconductors by 2031, up from $665 in 2021. AI is driving a new wave of innovation, revolutionizing robotics and automation technologies. With its ability to increase productivity, reduce costs and help solve problems related to global labor shortages, we believe robotics and automation will grow faster than the economy as a whole. This offers a very attractive thematic investment opportunity, both in the companies that manufacture the robots and in those that provide all the necessary elements, from semiconductors to software.

Guest column by Peter Lingen, Senior Investment Manager, Thematic Equities, at Pictet Asset Management

For more insights on opportunities within our Robotics fund, please click here.

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