Robotics technology is leaving the pages of science fiction and becoming a reality. While key challenges such as computer vision and grip need solving, companies like GXO Logistics are delivering huge efficiencies to the industry with the technology currently available. Robotics will have an ever-growing impact across a range of sectors as the industry continues to innovate.
- McKinsey predicts robotics will handle more than half of all work by 2055.
- GXO Logistics is a leader in deploying robotic technology to automated warehouses.
- The Global X Robotics & Artificial Intelligence ETF is up 23% in the past six months.
Advances in engineering and computer science over recent years have brought the robotics revolution closer to reality.
Back in 2017, a report from McKinsey estimated that more than half of human work would be automated by 2055, with a twenty-year margin of error in either direction. Today, the time horizon for investment into the space remains medium-term. Over the coming years, however, technologies which are currently conceptual or developmental will begin to dominate the business and economic landscape.
The global supply of operational robots hit a record high of 3.5 million units in February 2023, with the value of installations reaching approximately $15.7bn.
According to Statista, the global market for industrial robots was approximately $43.8bn in 2021, and it is slated to grow at a CAGR of 10% to reach nearly $70.6bn in the next five years. According to Global X, the robotics theme is still in the early adoption stage, meaning it can expect significant growth over the long term.
Manufacturing, ecommerce, defence, agriculture and healthcare, in particular, are undergoing an automation boom thanks to advances in artificial intelligence (AI) and mechanical technology.
The robotics theme dovetails with AI, with innovations in one field feeding into the potential of the other. Most companies in the robotics space incorporate some degree of AI into their offerings. As a result, most robotics ETFs have some overlap with AI. Furthermore, robotics manufacturers tend to supply robots for specific industries, so any given robotics stock will likely offer exposure to AI and another industry, such as ecommerce or defence, as well as robotics.
Intuitive Surgical [ISRG] is a good example of this. The company produces robots that make use of advanced computer vision technology, a subset of AI, to help surgeons perform surgery; the company therefore sits at the intersection of robotics, AI and healthcare.
The picking arms race
Robots have been part of manufacturing processes for decades, but two technological challenges are in the process of being solved, which should make more of the labour currently performed by humans achievable by robots.
The first of these is computer vision. The applications of advances in computer vision are far-ranging, and could one day enable anything from self-driving cars to robotic security guards. The limits of computer vision are continually being stretched; researchers at Northeastern University developed a breakthrough device in late 2022 that can recognise “millions of colours”.
The second challenge is grip. The human hand is remarkable for its dexterity and sensitivity, but robotics researchers are quickly catching up with millions of years of evolution. Private robotics developer Soft Robotics, for example, has created robotic picking arms that are capable of handling delicate foods and packaging them in warehouses, offering a potential boon to the food distribution industry.
As Mark Manduca, chief investment officer of GXO Logistics [GXO], told Opto: “Human beings right now are still better than robots at picking differently sized and, particularly, delicate items.”
The theme’s future will thus be defined by which companies can develop and scale advanced picking technology the fastest.
A typical robot arm can pick three — in some cases four — times what the human hand can, said Manduca. Every company involved in robotics development is aiming to increase this number. “[Companies] are engaging in what can only be described as an accelerating arms race.”
Robots in the warehouse and the home
GXO is one of the companies at the forefront of applying robotics to warehouse logistics and has made several innovative strides in 2023. In an industry first, in February, it successfully deployed autonomous mobile robots from partner Lowpad in a food and beverage customer’s warehouse in the Netherlands before rolling out similar fleets of robots across the country and in the UK.
In May 2023, GXO announced an extension to its partnership with Kellogg [K]. The partnership operates a number of European sites, including a 290,000-square-foot warehouse in Kutno, Poland, where automation has shortened the palletting process from 24 to 1.5 minutes.
However, robots aren’t just revolutionising industrial and business processes. Since 1990, iRobot [IRBT] has been developing a range of domestic robots, with over 40 million sold as of 2021.
Its Roomba s9+ series of automated vacuum cleaners have the ability to map their surroundings using computer vision, and can be taught to avoid specific areas, such as pets’ sleeping zones.
The field of robotics dates back at least to the mid-20th century, and it could still be fifty years before the economy, as we currently understand it, is primarily driven by robotic labour.
However, recent tailwinds have undoubtedly accelerated adoption. Chief among these, according to Daniel Navarro, managing director of consumer segments and service robotics at ABB Robotics [ABB], are “the explosion of ecommerce, changing consumer demands and global labour shortages”, all of which were accelerated by the Covid-19 pandemic.
Manduca agrees that the macro environment following Covid and Russia’s invasion of Ukraine provided tailwinds for robotics firms.
“Wages over the last couple of years are probably 20% higher, and robotics prices are lower during that period. Therefore robotics are inherently deflationary.”
Closing the gap between the capabilities of robots and those of humans continues to be the main challenge for industry participants.
Jay Jacobs, US head of thematics and active equity ETFs at BlackRock, believes that the increased ability of robots to perform these kinds of tasks will drive investment into the space.
“We think companies are really going to invest heavily into [robotics and AI]... to keep costs low,” he said on a 9 March episode of Opto Sessions.
According to Manduca, however, fears that this will completely displace human labour are misplaced. The trend is towards “people working alongside robots rather than people versus robots”, he says.
Funds in focus: Global X Robotics & Artificial Intelligence ETF
The Global X Robotics & Artificial Intelligence ETF [BOTZ] tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index, and invests in “companies that potentially stand to benefit from increased adoption and utilization of robotics and AI”. 43.7% of its holdings are in information technology (IT), 38% in industrials, and 16% in healthcare, as of 30 April.
BOTZ is up 17.1% in the past 12 months and up 22.7% in the past six.
The First Trust Nasdaq Artificial Intelligence and Robotics ETF [ROBT] tracks the Nasdaq CTA Artificial Intelligence & Robotics Index. This index is comprised of global companies with a minimum market cap of $250m engaged in AI, robotics and/or automation. Its holdings represent exposure to the sectors of IT (59.20%), industrials (21.99%), consumer discretionary (10.51%)and healthcare (5.46%), with the remaining split between communication services, real estate and consumer staples, as of 22 May.
ROBT is up 8.2% in the past 12 months and up 11.2% in the past six.
Investors can also gain exposure to the trend via the ARK Autonomous Tech & Robotics ETF [ARKQ], an actively managed fund that invests in automation and robotics companies as well as autonomous transport, 3D printing, energy storage and space exploration.
ARKQ is down 3.5% in the past 12 months and up 8.7% in the past six.
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