Bring on the robots...
That’s the message from today’s Inner Circle expert. Once the realm of sci-fi movies, robots are now finding their way into every American industry. From brick-laying robots that build a house in a day to robotic brain surgeons that operate with sub-millimeter accuracy, robotic technologies will revolutionize our world the way the internet did nearly 20 years ago.
And here’s the kicker…
Rather than destroying jobs, robots will add millions of jobs and create trillions in wealth in the years ahead.
As regular readers know, we have a mission here at Inner Circle. Each week, we plug you into the biggest profit trends shaping the markets by tapping into the network Inner Circle founder Bill Bonner has built over his more than 40 years in the investment publishing business.
And disruptive innovations – such as the robot revolution – are going to be some of the biggest profit trends over the next decade and beyond. That’s why we’re adding “Disruptive Innovators” as one of our top themes here at Inner Circle. For this week’s issue, we sat down with the newest name in our Rolodex, Bill Studebaker.
Bill is the president and chief investment officer of ROBO Global, the company behind the world’s first robotics index. It’s called the ROBO Global Robotics and Automation Index. And it tracks 80 companies across 14 countries that are on the front lines of developing robotic equipment for companies in a range of industries. Robots first appeared in a few niche applications on factory assembly lines decades ago. But that’s all changed…
As Bill reveals below, in the years ahead, robots will be a necessity for every kind of business you can imagine. Like the internet before it, robotics will revolutionize the way business is done. Companies will have to “automate or die.” And while some worry about job losses, Bill believes robotics will actually create jobs. It will add trillions of dollars of wealth to the global economy and send the share prices of strategically placed companies soaring.
Chris Lowe: For readers who aren’t up to date with recent advances in robotics, can you set the stage for us? Where is the industry at today?
Bill Studebaker: What most folks don’t realize is that robots have been with us for decades. In 1961, the General Motors assembly line in New Jersey introduced Unimate. It was a robotic arm that transported die castings from an assembly line and welded these pieces onto cars. This was a dangerous task for workers. Unimate made it safe. It was revolutionary for its time.
But to answer your question, every carmaker in the world today has robots working on its assembly lines. And robots are starting to appear in other industries, too. You see robots in healthcare… in construction… even in agriculture.
Chris: Why are robots going mainstream now?
Bill: Up until recently, robotics technology was still in the early stages. As revolutionary as Unimate was, it could only perform a very specific task. So it couldn’t be used for much outside of an automotive assembly line.
Also, early industrial robots were pricey. Even if a robot could handle a specific task on a factory assembly line, the costs were often prohibitive. But our computing power roughly doubles every two years. That’s created new robot technology and applications that weren’t possible even just a few years ago.
As computing power increases, costs plummet. So the return on investment from introducing a robot into your business is much more appealing now. In many cases, the robotic solution is so productive that it pays for itself within one or two years, sometimes just a few months.
Chris: What about artificial intelligence (AI)? You read about it everywhere these days. Where does AI come into play?
Bill: AI is another reason why robots are now more productive and can deliver a higher return on investment. Before AI, a robot could only perform one set task over and over. But with machine learning, the robot can “learn” each time it does the task.
It can analyze past data and adjust how it performs a task to be more efficient.
[Machine learning involves the use of algorithms to allow a computer to “learn” from past data and improve future performance.]
Eventually, robots will be so productive and cost-effective that companies will be at a competitive disadvantage if they don’t use robots. They’ll be forced to automate or die.
Chris: What industries are adopting robotics first?
Bill: Eventually, every industry will use robotics or AI in some way. But an example your members likely already know about is warehouse maintenance.
In 2012, Amazon bought robotics firm Kiva Systems. It now produces the robots Amazon uses in its giant warehouses to sort and pack its 1.6 million daily deliveries.
A Kiva Systems robot working in an Amazon distribution center
The robots look like larger versions of an iRobot Roomba vacuum cleaner. But they’re not cleaning floors. These robots are able to carry pallets that weigh 3,000 pounds and move them from point A to point B. Amazon has about 100,000 of these robots working in its distribution centers.
Another example is the construction industry. Last year, Caterpillar, the construction equipment company, invested $2 million in Australian startup Fastbrick Robotics. It’s building a brick-laying robot called the Hadrian X. Hadrian X has a large metal arm, which is attached to a truck. You load the three-dimensional model of the house you want to build into the Hadrian X system. It then lays the bricks automatically. It even takes into account windows, doors, and channels for electrical wiring and plumbing.
The Hadrian X can lay 1,000 bricks an hour. The best human masons usually only lay 1,000 bricks a day. And of course, the robot can work non-stop, 24/7. It’s able to build a brick house in as little as one day.
The Hadrian X from Fastbrick Robotics
Another interesting application for robotics is agriculture. Your members have most likely heard of the agricultural equipment maker John Deere. It produces those iconic green tractors. What they may not know is that, back in 2017, John Deere coughed up $305 million to buy a California-based firm called Blue River Technology. It builds farm machines that manage crops at a plant-by-plant level.
Chris: What do you mean, plant-by-plant level?
Bill: Imagine a farmer driving his tractor through a field, spraying his crops. Attached to the back of the tractor is a machine equipped with machine vision and artificial intelligence. It can view each individual plant. It can then decide if that plant needs more water, fertilizer, or herbicide spray. Rather than managing the entire field as though each plant has the same needs, a robot can break it down to a case-by-case – or plant-by-plant – basis.
Chris: The argument against robots you hear the most is that they destroy jobs on a mass scale. And so they threaten to plunge the world into mass unemployment and chaos. What do you say to that?
Bill: We have to start by understanding that this is not the Leave It to Beaver age anymore. We live in a time of exponential technological change. That includes the ever-changing career landscape.
Chris: Even so, people worry robots will take their jobs away. Last year, research firm McKinsey Global Institute forecasted that, by 2030, up to 800 million jobs would be destroyed by automation.
Bill: The chance of that happening, in my humble opinion, is zero. People make the mistake of thinking that when modern technology comes along, you’ll flip a switch and it will just work.
Right now, we’re only programming robots to do structured tasks. They will still need human oversight. Next, they’ll be able to do semi-structured tasks. That’s when they’ll have more autonomy. But there will still need to be a human element. Eventually, they will get to unstructured tasks and be able to operate almost entirely independent of human direction. But it’s going to take a while to get there.
The nature of work is fundamentally changing to eliminate dull and repetitive jobs. This, in turn, will free up humans to do more value-added work.
Chris: Do you have figures for how many jobs robots have already taken over?
Bill: On average, around the world, there are just about 70 robots per 10,000 workers. Highly automated countries such as Japan and Korea have about 400 to 500 robots per 10,000 workers. In the U.S., it’s about 200. So, if robots are stealing our jobs, they’re doing a bad job of it. What most people are overlooking is all the benefits robotics will deliver.
Chris: What kinds of benefits?
Bill: For one, there will be significant economic benefits. Technological advancements make some jobs obsolete, but they also create new job opportunities.
Ten years ago, when Apple launched the iPhone, it took market share away from other cellphone makers. Nokia and Motorola took a hit. People at those companies lost jobs. But something else happened thanks to the iPhone. It created an entire new industry – the app industry. Building and selling apps didn’t exist as a business model 10 years ago. Now, it’s a $150 billion-a-year industry.
Some of your members will remember the 1970s. How many web developers were there back then? How many digital artists? How many online marketers? Those careers didn’t exist until the internet came along and made them a reality. The same thing will happen with robotics.
Chris: What other benefits do you see?
Bill: There will be massive social benefits, too. Take self-driving cars…About 1.2 million people die in road traffic accidents around the world each year. Hundreds of thousands more are critically injured. Self-driving cars will bring the number of deaths close to zero. Self-driving cars don’t get distracted. They don’t text and drive. They don’t get drunk and try to drive home.
And then there’s healthcare. Surgical robots are able to operate with sub-millimeter accuracy. That’s going to lead to better surgery outcomes. An interesting company in this space is Israel-based Mazor Robotics. It makes robots that can perform spinal and brain surgery with pinpoint accuracy.
Chris: Let’s switch gears and talk about the investment case. You’re the president and chief investment officer of ROBO Global. You’ve created a series of robotics- and automation-based indexes. Can you tell us about them?
Bill: About five years ago, we saw the writing on the wall. We knew robotics and AI were going to change the way we live and work. And we found that, if you wanted to invest in the theme, your options were limited. So in 2013, we created the ROBO Global Robotics and Automation Index. It tracks 88 companies across 14 countries that are involved in robotics, automation, and AI. To create it, we developed our own classification system. At a high level, it’s broken up into two sections: technology and applications.
On the technology side, we’re looking at companies that help the robots “think, sense, and act.” Those are computing companies, AI companies, and “machine vision” companies, among others. Then there’s the applications side. We target companies that are developing and deploying robotic solutions for businesses. These could be security and surveillance companies… industrial automation companies… or companies that provide robotic warehouse maintenance, just to name a few.
We also have a series of standards a company has to meet to get into the index. It’s revenue-weighted, so the companies that draw large streams of revenue from robotics and automation get preference. And we have a team of robotics experts who help us determine which companies have technological leadership in their areas. One of our advisors is Dr. Henrik Christensen. He’s the head of the Contextual Robotics Institute at UC San Diego. Another is Raffaello D’Andrea. He was a co-founder of Kiva Systems, the robotics company Amazon acquired.
Chris: Are there any interesting companies in your index you’d be willing to spotlight for Inner Circle members?
Bill: Many of these companies are ones your members likely have never heard of. Only about 2% of the companies in our index can be found in the S&P 500.
One of my favorites is a company called Koh Young Technology in South Korea. It specializes in machine vision and AI for quality control in factories. So imagine a factory that produces mobile phones. The last thing a smartphone maker wants is to ship a defective phone. So the robot from Koh Young examines the phone and compares it to previously uploaded images of a perfectly designed phone. It makes sure the phone is good to ship before it goes out the door.
Another company I like is called Ocado. Based in Britain, it specializes in automated supermarket logistics and fulfillment. If you live in Britain, you can order your groceries online from Ocado. It uses automated systems similar to Amazon’s warehouse robots to collect your order from the warehouse and prepare it to be delivered to your door.
Chris: What about timing? Is now a good time to add some exposure to the robotics industry?
Bill: I think now is a great time to get some exposure. Today, everybody knows the internet changed the world. But how many people were buying Amazon back in 2000? Probably not many. In five to 10 years, robots will be everywhere – like it or not. And investors will wonder how they missed out.
Two years ago, I was at a conference in Miami. I met with a top ETF strategist. He told me our index was “cute” and that it would likely be a nice “niche” holding for investors. Today, we have about $3.6 billion under management.
The strategist sent me an email about six months ago. He apologized for his remark. He finally realized what a big trend this is. In the next few years, everybody else will too.
By Chris Lowe, originally published as members-only content for Palm Beach Research Group's Inner Circle.