The Mr. Roboto Bull Market
We may be at the beginning of what futurists have deemed the Second Machine Age.
This would be a new era of intelligent machines, robots and artificial intelligence systems that leap from science fiction to reality, and do things that until recently only humans could do. The motivation to invest in such technology: declining labor productivity and falling economic growth.
Since the beginning of the year, a bull market in automation and robotics stocks seems to be getting under way. The bellwether index for the industry, ROBO Global Robotics and Automation Index ETF (NSDQ-GM: ROBO), has risen 15.5% since Jan. 1 and is up almost 19% over the last year (the S&P 500 is up 8.6% in 2016).
Driving the index higher are companies in personal robotics, electrical components and equipment automation, and healthcare equipment.
Better Than Cheap Labor
For example, in personal robotics, companies such as iRobot (NSDQ-GS: IRBT) and its successful Roomba vacuum have opened the door for more personal or retail robotics; iRobot has also been expanding in other sectors, building and designing robots for the defense, security and telemedicine industries.
The Roomba vacuum controls 18% of the $2.3 billion U.S. vacuum market of units over $200.
In electrical components and equipment, ABB (NYSE: ABB), known as a global infrastructure stock, also provides automation technologies for utility and industrial customers. Its stock has been up 25% this year. The company’s ABB Robotics division sells industrial robots in many industries, including automotive, plastics, metal fabrication, foundry, electronics, machine tools, pharmaceuticals, and food and beverage.
ABB has sold 300,000 robots worldwide and is marketing its robots as a way for manufacturers to move from mass production to mass customization, where firms can quickly change and adapt production.
In healthcare, where costs can be astronomical, the push for intelligent machines has been a multi-decade trend. One such company, Intuitive Surgical (NSDQ-GS: ISRG) is revolutionizing surgery.
The company makes da Vinci surgical systems, which translates a surgeon’s hand movements, into corresponding micro movements of instruments inside the patient.
Analysts predict robotics will boom.
According to a report, Rise of Robotics, conducted by Boston Consulting Group, “the size of this coming wave of robotics is staggering: Spending on robots worldwide is expected to jump from just over $15 billion in 2010 to about $67 billion by 2025.”
In addition to the need to improve productivity, robotics is getting cheaper and better, the report found.
Robotics can also provide a competitive advantage to companies and countries. For instance, Boston Consulting believes that countries with a greater number of robotic programmers and robotic infrastructure could become more attractive to manufacturers than countries with cheap labor.
Investment of a Millennium?
The start of the Second Machine Age could be the investment of a lifetime, on par with development of the steam engine, electricity, computers and the Internet.
But we would caution investors that as with the dot.com boom, there will be many winners and losers. We’ll be exploring best buys in advanced automation in upcoming issues of Investing Daily’s Breakthrough Tech Profits.
The potential political, economic and corporate dislocations from these technologies cannot be underplayed. We would focus on firms that already have an established presence in the market and that have delivered consistent earnings over a long time, as business changes and evolves in this brave new world.