Recent technological advancements in robotics and artificial intelligence (AI) are disrupting a range of industries from manufacturing, to health care, defense, and transportation. To better understand the potential growth of these revolutionary technologies, we explore the following questions:

  1. What are robotics and AI?
  2. What are the drivers of growth within robotics and AI?
  3. Which sectors are being disrupted by these technologies?
  4. What types of companies are expected to benefit most?

What Are Robotics and AI?

Robotics is a term for a mechanical device designed to perform an operation or task. These engineering feats are increasingly joined by advancements in software, which allow computers to work, learn, and problem-solve- an area of computer science called artificial intelligence. Together, these technologies are revolutionizing the way we complete tasks, analyze data, and make decisions.

Many don’t realize just how little human oversight is required of today’s most advanced robots. One Japanese factory has been running in “lights out” mode for more than 15 years, meaning there are no human factory workers.1 Automated plants like this are capable of manufacturing everything from electric razors to even other robots. In addition, breakthroughs in AI allow computers to perform complex tasks by drawing on various data sets and inputs. For example, IBM’s Watson computer is able to generate sports highlight reels by analyzing crowd noises and player gestures.2 Joining the mechanical abilities of robotics with the intelligence of AI has resulted in machines capable of cleaning, cooking, driving, and caretaking among other human-like tasks.

What Are The Drivers of Growth Within Robotics and AI?

Robotics and AI are addressing a host of problems characterized by an aging workforce, rising labor costs, and quality improvement needs.

The demographics of the world are changing rapidly on two fronts. First, a greater portion of the population is entering retirement age while birthrates are plummeting. According to the World Health Organization, “The number of people aged 65 or older is projected to grow from an estimated 524 million in 2010 to nearly 1.5 billion in 2050.”3 With a shortage of births to replace these retired workers, many countries are facing the prospect of shrinking workforces. Japan’s workforce, for example, is expected to decline to roughly half its peak level by 2060.4

Even adequate labor resources are not necessarily enough to sustain growth. Labor costs are expensive and rising, which is a particularly challenging prospect for competitive industries like manufacturing. While in recent decades many businesses turned to offshoring these jobs, many companies are finding robots to be even more cost efficient. One analysis found that offshoring jobs could save a firm approximately 65% on labor costs while replacing workers with robots can achieve an estimated 90 % in savings.5

Last, robots and AI are drivers of improved productivity. Engaging these technologies can yield faster, higher quality outputs without cognitive and physical problems associated with fatigue or malpractice. The adoption of robotics in places like Germany, South Korea, China, Japan, and the U.S. is expected to boost productivity by up to 30% by just 2025.6

Which Sectors Are Being Disrupted?

Nearly every industry can find ways to incorporate these innovative technologies in an effort to improve output or reduce costs. This is why analysts expect that by 2020 the robot and AI market will exceed $150 billion.7 The industries that are at the forefront of this adoption include:

Manufacturing: Robots have a long history in manufacturing. Today, they can do more than ever, including vision-recognition and motion detection capabilities, which broaden their utility to both think and do. As a result, manufacturing processes relying on automation is expected to grow from 10% in 2015 to an estimated 25% in 2025.8

Military And Defense: Drones are reducing the need to put soldiers in danger in major conflict zones. In addition, robots used for transportation, search and rescue, and reconnaissance are all seeing increased adoption.

Medicine: Robots and AI are making headway in administering procedures on patients and diagnosing illnesses. IBM’s Watson supercomputer has a 90% accuracy rate in lung cancer diagnosis compared to 50% by humans.9

Transportation: Autonomous cars are already appearing on streets. By 2030 autonomous cars could account for up to 15% of passenger vehicles sold worldwide.10

Agriculture: AI and robots are equipping farmers with new ways to analyze soil, irrigation, and crop yields. This data can make more efficient use of farmland while boosting harvests. The global market for agriculture robots is projected to exceed $15 billion by 2020.11

Finance: The financial sector is at the fore of advancements in AI as Financial Technology (FinTech) such as the introduction of robo-advisors which can create and maintain customized portfolios for investors.

How Big Is This Opportunity?

Investors can participate in this growth with a focus on the industries poised to gain the most from this innovation.

What Types of Companies Stand to Benefit The Most?    

Just as computers and the internet became ubiquitous tools for virtually every industry, it is expected that AI and robotics will become equally as commonplace. The companies that stand to benefit the most from this development involve companies in a range of industries and countries that are at the forefront of developing or implementing these technologies. Such companies include those developing industrial manufacturing robots, medical device companies developing surgical robots, defense corporations producing drones, transportation companies involved in driverless vehicles, and software developers pushing the boundaries of artificial intelligence.

Many of these firms can be found in the Global X Robotics and Artificial Intelligence Thematic ETF (BOTZ), which seeks to provide exposure to companies around the world with high exposure to the Robotics and Artificial Intelligence theme.

For BOTZ’s current holdings, click here.

Footnotes

1. CNN Money, Fade to Black the 1980s Version of “Lights-Out” Manufacturing, Where Robots Do all the Work, is a Dream No More, June 2003.
2. ZDNET, IBM Watson is Creating Highlight Reels at the Masters, April 2017
3. Global Health and Aging. The World Health Organization. 2011.
4. Japan’s population is shrinking: What does it mean for the economy. World Economic Forum. 2016.
5. PwC.
6. The Boston Consulting Group (BCG).
7. GE Reports, The AI Market will Soon Top 150 Billion. Get a Piece of It, June 2016.
8. CBS News.
9. McKinsey & Company.
10. Global Industry Analysts, Inc.
11. Bank of America Merrill Lynch Global Research.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only.
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