Last week Masayoshi Son, the world’s biggest tech investor, said smart robots will replace most of the working population. The process will not only “liberate” us from boring jobs but revitalise the economy in the process.
Son is the founder and chief executive of the Japanese conglomerate Softbank, behind the $100 billion Vision Fund and widely considered the world’s biggest tech investor. It is, however, worth pointing out Son has a patchy record at best when it comes to spotting and investing in trends in robots and robotics.
In 2012 Softbank bought out the French robotics firm Aldebaran, and in 2014 launched Pepper, a friendly humanoid robot the latter developed. Pepper was promoted as able to read human emotion and, as such, suited to employment as a customer service agent or even ‘home companion’.
Pepper never really caught on despite becoming a common site in Softbank’s mobile operator stores, of which there are thousands around Japan. In all, only 27,000 Peppers were made, with a good portion of those presumably purchased by Softbank itself. In early July Softbank announced the manufacture of Pepper would be “paused”.
Nobody really expects Pepper production to resume because the robot wasn’t really up to doing much. Poor sales were reportedly the result of “limited functionality and unreliability”. Not much of an upgrade on the usual customer support agents found in mobile operator stores then.
In 2020, Softbank cut back its exposure to the American robotics company Boston Dynamics, famous for its viral videos showcasing the abilities and uncannily natural movements of its humanoid and animal-inspired robots. Having acquired Boston Dynamics from Google in 2016 for $100 million it sold an 80% stake to Hyundai in a deal valuing the company at $1.1 billion.
On the one hand that could be seen as very good business and a handsome return on four years of ownership. Softbank also retains a 20% stake so presumably sees a commercial future for the company’s R&D. But it’s also an indicator Softbank didn’t see Boston Dynamics’ future commercial success as a banker.
However, Softbank’s overall investment portfolio still has plenty of exposure to ‘smart robots’. The Vision Fund has equity stakes in 18 companies developing artificial intelligence-enhanced machines.
Last Wednesday Son, to a backdrop of videos of Boston Dynamics’ humanoid Atlas robots running and jumping, as well as canister-shaped machines cleaning floors, told the audience of the virtual Softbank World 2021 conference:
“Smart robots that will replace not just the manufacturing, industrial working population, but the entire working population.”
However, no details on new investments or launch dates and market prices of any of the devices shown on the display videos were forthcoming.
Softbank and other investors have poured billions into robots over the past several years and it’s hard to find an expert that is not convinced that many of the jobs currently carried out by humans will no longer exist in 10-20 years because machines will be doing them. At the same time, big, exciting projects that promise a mainstreaming of futuristic robot technology invariably end in disappointment.
Softbank’s Pepper is one obvious example. Driverless vehicles, promised for years and the real prospect of seeing them on the roads always seemingly another few years away, another.
For investors, betting on the future commercial value of developing technologies like robots is a dilemma. The potential returns could be hugely significant. But the risk of investing in the next Pepper also very real.
So what’s the solution for investors who want risk-balanced investment exposure to the commercial growth of the robotics and automation sector?
What exactly is an investment in robots and robotics technology?
An important first step is to properly define and understand what is meant by robots and robotics. When robots are mentioned, many immediately think of humanoid machines powered by artificial intelligence – something like Pepper.
Really, a robot is any kind of machine automation and includes things like software and algorithms that automate tasks. For example, most investors will have heard of robo-advisors that put together customised investment portfolios. Robo-advisors have nothing to do with humanoid ‘robots’ or anything physical at all.
The ‘robo’ refers to the fact software is programmed to automate the same process that a human financial would go through. Instead of a middle-aged man in a slightly crumpled suit asking for information on your personal financial situation and investment goals before matching the investor persona that information builds to a suitable portfolio for you to invest in every month – a software programme does it.
Driverless cars sitting in front of us at traffic lights while a passenger calmly reads a book, watches a favourite show or gets on with some work probably won’t be a common sight in the next five years. It could be in 10. But maybe not. It’s a risky bet for investors that don’t have the luxury of setting aside money for moonshots.
But there are other kinds of driverless or highly automated vehicles already in operation and making money for the companies that have developed them. The Japanese company Komatsu, for example, manufactures diggers, dump trucks and dozers that can be found in many of the world’s mines and construction sites.
Komatsu isn’t thought of as a robotics company in the traditional sense. But it is moving steadily and definitively in that direction by empowering vast machines with the kind of communications, data-gathering and data-processing tools that make their operations more efficient now and will one day lead to many of them becoming human-free. Or, in all practical senses, robots.
Currently with a p/e ratio of under 20, Komatsu is being valued more like a heavy vehicles equipment manufacturer than a technology company, despite a probably future as an autonomous vehicles company.
Another company, this time UK-based, that is doing well from robotics now, rather than hope being pinned on future commercialisation of still-developing technology, is Ocado. Perhaps still best known as an online groceries service in the UK Ocado’s valuation is these days far more reliant on its warehouse automation technology which it licenses to major supermarket chains around the world. It also builds and runs automated warehouses for clients.
The Ocado share price has also had a bad year, down almost 38% over the past 12 months, which could potentially represent a buying opportunity a year after its high point of 2895p last September. The company has had a tough year with its second major fire in 3 years destroying a warehouse in Erith in July and costing £20 million in lost stock and business disruption.
The Ocado share price has also suffered from the easing of online groceries orders in recent months and a general investor shift out of companies investors have viewed as “pandemic stocks”.
Ocado’s valuation is likely to be bumpy over coming years and heavily influenced by the number of new contracts to build automated warehouse facilities around the world it signs. But could well be a good long term prospect following the recent drop in value.
Robotics and other automation technology is likely to leap forward over the next decade as a result of the new fusion of robots with AI. Factory automation, also where robots were first deployed back in the 1960s, is also expected to be the first major growth sector for a new breed of AI-infused smart robotics.
Bank of America has forecast the global installed base of industrial robots could double from 2019 levels to over 5 million units by 2025. Companies that might be expected to benefit from that trend, say Investors Chronicle, include Swiss robotics giant ABB, industrial automation specialist Rockwell Automation, and machine vision business Cognex.
Companies like Nvidia who design and manufacture the microchips that will power AI-infused robotics and software-based robots are another play on the sector.
Many investors may, however, prefer to diversify more broadly and opt for funds rather than individual robotics and automation stocks. There are both actively managed funds and passive index trackers that offer diversified exposure to the sector. Some of the choices available to UK-based investors include:
- L&G ROBO Global Robotics and Automation UCITS ETF
- iShares Automation and Robotics UCITS ETF
- Polar Capital Automation and Artificial Intelligence Fund
- Pictet Robotics Fund
- Sanlam Artificial Intelligence Fund