Investing in the Robot Revolution: Part 2

AllianceBernstein L.P.

Catherine Wood and Michael Shavel

From manufacturing to services, a step change in automation is underway. Investors will want to get a share of a market that could be worth $400 billion by 2020 but, more than ever, they will need to be well advised.

Like the original industrial revolution of the nineteenth century and the second age of mass industrialization in the twentieth, the current automation revolution is being driven by several convergent developments. Advances in computing are occurring at such a rate that computers with the equivalent processing and memory capabilities of human beings could be developed within the next quarter century. Evolving alongside this surge in computing power are new processes, such as three-dimensional printing, and new technology, like robots that can sense when something is getting in the way and stop. Together, these advances have the power to transform industries and open up significant opportunities for investors.

In our last blog, we looked at how robotics could transform everything from driving to surgery. But 3D printing could have ramifications at least as big. This revolutionary process allows prototypes, components and—ultimately—finished products to be designed on a computer and then “printed” in a machine that deposits material layer by layer to create an immediately useable article. The technology would allow individually tailored products to be as easily and cheaply made as mass-produced goods, and instantly available and ready to use exactly where they are needed.

These technological breakthroughs are all happening as rapid industrial growth in developing countries is starting to drive up the low labor costs that have propelled Asian and Latin American economies. Populations are ageing more rapidly—and not just in developed countries. China must soon confront the implications of its one-child policy on economic growth. Fewer and more expensive economically active members of the population will make labor-intensive manufacturing increasingly less economical. And in many emerging economies, the penetration of robots in industrial sectors is far behind developed markets (Display).

Meanwhile, the corporate sector is hungry for new sources of revenue. Years of high profits and limited opportunities for investing them have left companies flush with cash. In a world of low interest rates, where consumers use savings to reduce debts rather than spend, we expect the prospective returns from automation to look like an increasingly attractive way of investing this spare capital.

As a result, we forecast a step change in the automation market over the next few years. Currently worth around $100 billion, we expect it to quadruple by 2020, putting it on a par with the market for e-commerce. But we don’t expect this development to be even. Some companies will be the Apples and Googles of automation; others are destined to be the Kodaks—clinging for too long to a technology like photographic film, long after it has been left behind by the world. That’s why it will be more important than ever for investors to have well-resourced, well-researched and wise counsel at their backs before investing in this brave new world of technology.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.

Catherine Wood is Chief Investment Officer—Thematic Portfolios and Michael Shavel is Research Associate–Thematic Portfolios, both at AllianceBernstein.

3 comments

  1. Things are more complicated than that. Increasing unemployment will soon make investments in automation too expensive. The tiem of the robots was the 1980s. Since them it is a decay. There is no need in making machines like people when there are so many people around.

    • Catherine Wood

      Rick,

      Thank you for your interest in our blog post. Our research indicates that robot productivity is actually increasing as robot prices decline. We believe these are important considerations that are driving businesses to automate – not only in the already well-penetrated automobile manufacturing market, but in various other industries as well. Meanwhile, as we pointed out, China has reached a stage of its development where manufacturing based on large quantities of cheap labor is becoming less and less sustainable. Demographic policies are shrinking China’s working population and we are witnessing an acceleration in wage inflation. When taken together, we believe these dynamics are compelling reasons why demand for automation and robots will not be short-lived.

  2. This is a good series — and hopefully one you”ll continue. After spending 18+ months touring robotics labs and companies I have become convinced that robotics is on the cusp of non-incremental change. One driver, as you mention in your reply above, is the steady decrease in costs (this is particularly true in sensors, as many of the component parts ride a steep cost decline thanks to mobile phones), but it manifests elsewhere. Perhaps most exciting is the impact of two technologies already creating value: machine learning (imagine robots that can react to changes in their environment by re-programming themselves) and cloud computing (to offload compute- and storage-intensive tasks to the cloud can have a tremendous impact on mobile robots). Looking forward to the next post.

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