Just a few years ago, the industrial automation industry had a moment of glory… but it wasn’t the first time. As has been the case many times since the 1980s, advances in computer technology have enabled factories to increase productivity and/or reduce costs. For enterprises, this is a familiar evolution that will remain until the next upgrade cycle.
Then something amazing happened. The emergence of artificial intelligence (AI) has exceeded all expectations of just a few years ago. Truly autonomous robots now work in factories and warehouses around the world and serve the logistics/delivery and agricultural markets. They even do chores in people’s homes. In fact, wherever physical labor is performed, robots are increasingly doing the work. That’s why Roots Analysis’ outlook shows that the global robotics market is expected to grow from $65 billion last year to $376 billion in 2035, coinciding with forecasts from Imarc, Global Market Insights, Precedence Research and others.
This certainly means opportunity for investors.
The main challenge? The robotics industry is crowded and complex. There’s no doubt that getting a good grasp of the market and identifying its top stocks is a difficult task. The best option for most investors is to own an exchange-traded fund that reflects the performance of the entire industry. There is one name above all others. this is First Trust Nasdaq Artificial Intelligence and Robotics ETF(NASDAQ: ROBT).
If you already hold the more popular bot ETFs (e.g. Global X Robotics and Artificial Intelligence ETFthis iShares Future Artificial Intelligence and Technology ETF,or Robo Global Robotics and Automation Index ETF. There is almost nothing wrong with your location. All three funds hold AI must-haves such as NVIDIAand most robotics should-like UiPath or symbolic.
However, First Trust’s Nasdaq Artificial Intelligence and Robotics ETF differs from its closest alternatives in one very important way. That’s how it’s built. based on Nasdaq CTA Artificial Intelligence and Robotics Index, the fund is not unbalanced because of cap weighting, but very balanced because of equal weighting.
Well, no exactly Equal weight. Companies that primarily design or create robotics and AI solutions (such as UiPath or Symbotic) make up 60% of the fund’s portfolio, while companies that only make components used by the robotics and AI industry make up 25% of the fund’s allocation. Another 15% are companies involved in the market, but artificial intelligence and robotics are not their core business. However, the selected stocks have equally sized shares across the three categories.
The end result? It’s rare for a single stock to account for more than 2% of a fund’s total asset pool, and when that does happen, quarterly rebalancing takes care of it.
Image source: Getty Images.
Perhaps more importantly for investors, however, ROBT provides substantial real-world exposure to UiPath, Symbotic, and Japanese robotics stocks. FANUC (Fuji Automatic CNC) will not overload AI giants such as Nvidia Broadcom;Both names account for over 1% of ROBT’s value.
If you want to be more exposed to Broadcom and Nvidia, you can still hold them directly, or through any other exchange-traded fund that holds tech stocks; ROBT just gives you a way to invest in the entire robotics business, which is made up of a group of lesser-known companies.
It’s also quite cost-effective, with an annual expense ratio of 0.65%.
If you’re planning on doing some due diligence on the First Trust Nasdaq Artificial Intelligence and Robotics ETF before committing, be forewarned…the fund underperformed S&P 500 Index(SNPINDEX:^GSPC) as well as Nasdaq Composite Index(NASDAQ: ^IXIC) past few years. This can be worrying.
Just remember the unique circumstances of the past few years. They’re led by a handful of AI-related companies that aren’t exactly robotics company names. In fact, the actual robotics industry is still working hard to integrate the latest AI developments into its products and commercialize the resulting solutions.
However, this is already starting to happen in earnest. Just this year, for example, Hong Kong-based company Neptune has seen a surge in demand for its artificial intelligence-driven robots that clean and scrape the sides of ocean-going ships three to five times faster than humans can do the job.
More notably, this year humanoid robots began quietly replacing real human workers on a large scale, at least in settings like warehouses and factories. Although the leading company in the field has not revealed many details about its operations, Agility Robotics announced last month that its “Digit” robot has now moved a total of more than 100,000 suitcases. The company also confirmed that at current peak production capacity, it can produce up to 10,000 humanoid work robots per year. This is not a small amount.
We’re at a tipping point where AI-powered robots are actually reliable and cost-effective enough to merit widespread deployment. Optimistic forecasts for industry growth aren’t just hopeful thoughts—they’re a realization of what awaits now, as robotics companies figure out how to shape and integrate cutting-edge artificial intelligence into their technology.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions on and recommendations for Nvidia, Symbotic, and UiPath. The Motley Fool recommends Broadcom and Fanuc. The Motley Fool has a disclosure policy.
This bot ETF is poised to grow 400% over the next 10 years Originally published by The Motley Fool
