Transformative Technologies are Here Today: Top Trends Across Robotics, AI & Health Tech for 2023

     

    As we move into 2023 and beyond, we expect to see major technological trends continue to shift the way we experience and interact with the world. The digitization of the economy is proceeding at a brisk pace, and business leaders around the world are now taking full advantage of the increasingly broad set of automation technologies available, from innovations in software and the cloud to advancements in robotics and machine learning. 

    We believe these trends will provide investment opportunities related to five key themes, each a potential secular beneficiary, that may help investors take advantage of cyclical market weaknesses.

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    Top 5 Technology Trends for Investors to Watch in 2023:

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    AR-VR-Icon

     

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    Liquid Biopsy Will Enable Early-Stage Cancer Detection
    Autonomy Will Redefine Mobility
    Now Entering a World of Connected-Care
    AR/VR Will Break Barriers Between the Physical & Digital Worlds
    Reshoring Will Drive an Automation Revolution

     

    ROBO Global currently offers three innovative index portfolios to allow investors to capitalize on these 2023 technology trends, including our Robotics & Automation Index (ROBO)Healthcare Technology & Innovation Index (HTEC), and Artificial Intelligence Index (THNQ). To learn more, visit our website at www.roboglobal.com.


    Webinar Transcript:

    Lauren Hein:

    Hi everybody. Thank you for joining us this morning for our Disruptive Trends to Watch in 2023 conversation. I'm Lauren Hein. I'm the head of Advisor Relations at ROBO Global. I'm here with our research team, our esteemed industry experts, Jeremie Capron, my director of research, Lisa Chai, our senior research analyst, and Zeno Mercer, our research analyst. And we're going to cover the technologies that really excite us going into the new year. First things first. You can download this report at roboglobal.com, and they should have been emailed out to you at registration as well. So they should be sitting in your inbox if you'd like to follow along with our conversation. Our five trends to watch this year in the order that we're going to discuss them today. Number one, liquid biopsy will enable early-stage cancer detection. Number two, autonomy will redefine mobility. Number three, now entering a world of connected care. Four, AR/VR will break barriers between the physical and digital worlds. And our final exciting trend for 2023 is reshoring will drive an automation revolution. So the first question I guess is open to everybody, then we'll start with the liquid biopsy conversation with Zeno. How did you guys arrive at these five trends for the year?

     

    Jeremie Capron:

    Well look, at ROBO we think robotics, AI, and healthcare technologies are a set of technologies that can be applied to so many industries, very much like the internet over the past 20 years, and in the last few years we hit an inflection point and we've seen machine intelligence significantly widen the range of possible applications. So a decade ago was essentially about robots automating the manufacturing of cars. But in the last few years we saw robots coming out of the factory and finding tremendous applications in so many areas, warehouses, logistics, we have flying robots, we have robots driving cars and trucks, we have surgical robots, we have automated systems all around us, in labs, in transportation. So there were so many areas to pick from. And so we narrow it down to those five trends because we believe they will have an important impact on investment strategies over the next few years.

     

    Lauren Hein:

    And I did look at the 2022 trends report, and there's some continuity there from what you guys were excited about last year for sure. Zeno, I'm going to start with you. Talk to us about liquid biopsies early-stage cancer detection, and walk us through this first segment of the report.

     

    Zeno Mercer:

    Right. So one of the first trend that we highlighted for 2023 is the concept known as liquid biopsy, which is essentially the ability to detect cancer in the blood, the goal being to detect it earlier and less cost invasiveness to prevent the spread from stage one to stage two, stage three, stage four cancer, and ultimately provide an outlet, an ability for more people to get treatment for cancer. So I think one thing to think about here is first, what is liquid biopsy? Essentially it's detecting tumor DNA in the blood. This builds upon years and years of technology advancement, both hardware and software, that has allowed companies to go out and market products, get FDA approval, really, and then get insurance reimbursement from providing these services because they validated the clinical efficacy of this. But ultimately, liquid biopsy is a technology that we really believe will take off in 2023 with new approvals and increased uptake of people utilizing this going forward.

     

    Lauren Hein:

    Do you have any specific companies that are within any of our indexes that excite you in this technology? What would you say is maybe the exposure within any of our indexes by percentage basis? Give us some advice here.

     

    Zeno Mercer:

    Okay. So I'll start with your second question here. So our exposure and how we look at the subsectors, if you will, that we have connected to liquid biopsy. It would be remiss to talk about liquid biopsy without talking about the Genomic space. And we have about 11% exposed to the Genomic space through companies such as Illumina. So Illumina really is a pioneer of DNA sequencing, which is truly enabling the liquid biopsy space to act and work. So Illumina also pioneered one of the first... They weren't really the first to market with a liquid biopsy, but they had an interesting story where essentially they were doing non-invasive prenatal testing in 2013 on women who are pregnant, to detect if their children, their babies, they were still in the womb, had any genetic diseases, NIPT, non invasive prenatal testing. What they found though was that they actually detected cancer tumor DNA in the samples they received.

    And they realized that, hey, we are finding cancer in women and some of these people might not know they have it. So they actually went out and reached out to all the people that had submitted samples, and they actually discovered that yes, many indeed had no indication, no symptoms, no diagnosis, anything. And so what they realized is that, hey, we're onto something here and we can actually detect cancer in blood like that. Now, they're not the only ones who have done this. In fact, another company called Guardant Health had actually already been a little further along in progressing their Guardant 360 device or assay, really, which can detect cancer early as well. So those are two different companies that we have. There's also a third, Vercyte which has a number of products that are detecting specific cancers such as lung cancer, thyroid cancer, and prostate cancer, that are already in the market today and available to people for use and getting for utilization.

    So doctors are prescribing this if they have any symptoms or if they're a high risk population. Back to Grail though, which is the company that Illumina spun out. Essentially Grail has a pan cancer test that can detect over 50 different types of cancers. And this is available to the general public now, but it's currently about $850 a test. And it's not covered by insurance. So that is in their pipeline to try to get covered in the next several years. But, for example, you thought you might have cancer or it was unsure a doctor could actually prescribe this test. So there would be an out-of-pocket pay for $850 currently. But if you think about how much less expensive that would be than waiting years to detect and find a later stage cancer, you can really start to see the benefit here of how early cancer detection, at that baseline price, if it gets covered, could be very impactful for the healthcare ecosystem and individuals' lives.

     

    Lauren Hein:

    Is there a world that you envision in the near future where we'll go in for routine blood work and start doing some standard cancer screenings at that point?

     

    Zeno Mercer:

    Yes. So in the future, liquid biopsy will probably be a part of yearly or bi-annual screening for people. It could depend, maybe there's a specific cancer that is higher risk for an individual, and if that test were cheaper, maybe that would be the test that would be opted in for. But ultimately, as the cost of sequencing goes down, as this technology improves and scales out and they can have improved economies of scale from the cost structure, you'll definitely start to see liquid biopsy, more of an annual screening, and cancer detection rates would technically go up, but the stage at which cancer is detected will go down, which would improve the survival rates of many, many people. You have disparities of five, 10, 20x survival rates for many cancers, and many of those, which don't have a proper or established protocol for detection. So this is really game changing technology that we believe will have rapid adoption ramping up in the next several years.

     

    Lauren Hein:

    So to tie this back to our HTEC index, primarily these companies you consider in the genomic subsector, are there other secondary subsectors that are touching this?

     

    Zeno Mercer:

    Yeah, so while I started with Genomics as the core, we also have the Diagnostic subsector, which is 15% of our index and the Process Automation. So if you think about how the liquid biopsy process works, you have companies that are building specific assays that can go and either collect or detect the cancer itself, but there's also Lab Process Automation. It has to be collected, it has to be securely transported back to a lab. It's not being done on site, generally speaking. And then another secondary market that we also have exposure to here is a Precision Medicine side. So while earlier cancer detection is a great thing and can provide better outcomes, on the other end of the spectrum the actual treatment protocols in place are being greatly enhanced through the development of precision medicine with CAR T therapies, CAR NK therapies and other precision medicine that can target the cancer without more of a shock and approach like chemotherapy and other methods.

    So we're really excited about seeing early detection, met with more precise medicine, having an enabling effect at reducing cancer mortality rates and the overall cost and burden of cancer from both an economic and opportunity cost for people.

     

    Lauren Hein:

    Awesome. Zeno, definitely something that touches everybody. So thank you so much for that outlook. Jeremie, I'm going to pivot over to you. Let's talk about autonomy redefining mobility. And actually this is an extension of two of the themes from last year's report that robots are coming to save the supply chain and that a factory automation super cycle is here. So maybe a good place to start is talking about the biggest growth opportunities in mobility and connected vehicles in the next upcoming year.

     

    Jeremie Capron:

    Sure. Well look here, the key word is autonomy, and autonomy is the next step of development for machines. And so until recently, automation was really about programming machines and computers to do repetitive things in a very systematic way, very fast and accurately. Now, with the advent of machine intelligence, we're able to push it to the next level, which is autonomy and systems that can make decisions based on their environment and how it changes. And so that's been enabled by tremendous progress in terms of computing power, in terms of gathering strong data sets and running machine learning onto them. And then in terms of actuation and how those machines are able to react really fast. So of course we're all talking about autonomous cars, and that's the holy grail out there. And frankly speaking, we're getting close. We've seen the start of the first ROBO taxi services, commercial services, being launched in the United States over the last couple of years, so that's coming really fast.

    But we think that's just the tip of the iceberg. And in reality, autonomous mobility is gaining a lot of traction in areas that you may not be aware of. And one of the most promising areas, in our view, is really in the warehouse. So it goes back to what you were saying lower and about warehouse automation. In fact, there are hundreds of thousands of autonomous mobile robots operating today in distribution centers for e-commerce and in other areas of the supply chain. We think that's probably the faster-growing and most exciting piece of autonomous mobility from an investor's perspective today. There are a lot of companies involved in this area, many of which are in the ROBO Index.

     

    Lauren Hein:

    I want to ask you next about the company specifically in the ROBO Index, but do you envision a world in the future where warehouses are fully autonomous without any humans present there at all? Maybe not in 2023, but further out?

     

    Jeremie Capron:

    Yeah, that's certainly the direction we're taking. And if you think about how manufacturing has become very much automated areas like automotive and consumer electronics and things like that, those manufacturers are tending towards, what we call, the light out factory where you basically can turn off the lights because there's no one in there. And we're not quite there yet today. But I think the goal for supply chains and warehouses and distribution centers is very similar. But today we're so far from that. In fact, here in the United States, we have more than 17,000 warehouses, and a low single-digit percentage of those are automated today. So there's a long way in terms of adopting all sorts of automation equipment first and then moving to autonomous mobile robots, and ultimately the lights out the warehouse.




    Lauren Hein:

    So easy segue to companies that are going to benefit as we do more autonomous systems with logistics and manufacturing automation. So what are some of your favorite companies? I'm assuming most of these are in the ROBO Index specifically.

     

    Jeremie Capron:

    Yes. We think supply chain optimization and warehouse automation and real-time inventory management are the real focus here, and you'll find in the ROBO Index, many companies involved in warehouse and logistics automation. You've got all sorts of different business models. You've got companies like Zebra Technologies here in the US that do real-time asset tracking, the tracking, and tracing of components of parcels in a supply chain. You'll find companies like KION in Germany which does logistics automation solutions for the big players, or Daifuku in Japan, that's the world leader in material handling equipment. You'll find software businesses like Manhattan Associates, that's a US-based software company that does warehouse management systems, or I can think of Auto Store that's based in Scandinavia and does very compact automated storage systems. That's gained a lot of traction and that went public last year.

     

    Lauren Hein:

    I'm going to drag you back really quickly to autonomous vehicles. Maybe let's first stop with electric vehicles. Do you see a transition in the near future till all the cars on the roads will be electric and then the next step will be autonomous vehicles? Then I want to talk about companies that are going to benefit from growth in those areas, specifically.

     

    Jeremie Capron:

    Yeah, we certainly think that electric vehicles offer a lot of advantages over traditional combustion engine-based vehicles. And the benefits are so enormous that the market is going to shift naturally toward that. The big question mark is over the pace of this transition, and we can debate around that, but the trend is very clear and very powerful. And if you look at investments being made by OEMs, we've seen a dramatic shift over the past two to three years in terms of allocating to EVs. So that trend is firmly in place. And it's important because an electric car is essentially a much simpler car than a combustion engine-based car. There are fewer moving parts, the maintenance is easier, and the design is easier, but you need very significant investments in terms of production assets to deliver those.

    In terms of the beneficiaries of the more electric and smart cars, we see a lot around the semiconductor industry and the companies that deliver the chips that are used for the computing side or for the computer vision side. And in ROBO, you'll find companies like Ambarella that does computer vision on a chip, and whose technology is embedded in the next generation of vehicles, or you'll find companies like Qualcomm and Nvidia, and Hexagon also in Europe.

     

    Lauren Hein:

    Okay. Something in the report that we haven't talked about yet is drones, drone technology, specifically for a last-mile delivery solution. Is that something you think is realistic? Is that something we think is affordable? And do we have any drone exposure within ROBO?

     

    Jeremie Capron:

    Yes. Drones, we regard as flying robots, and we think there's a huge market potential for this type of technology. Today it's still more of a niche, but all the big players are experimenting with drones, from delivery applications to inventory management indoors. We think, right now, on the commercial side, there's a great opportunity to use drones for monitoring and surveillance, and surveying outdoors. It can be public infrastructure, it can be power utilities, it can be used in mining and construction, and agriculture. And that's where autonomous drones are gaining traction right now. So in terms of exposure within ROBO, it's once again going to be on the chip side, and companies like Nvidia and Analog Devices are involved there, Ambarella and Qualcomm or key providers of chips that are being used in drones, and especially autonomous drones.

     

    Lauren Hein:

    Is the FAA on board with this, and are we actually doing any drone delivery in the US at this point?

     

    Jeremie Capron:

    This remains all experimental at this stage, especially in the US where we have strong regulation of airspace. But we started to see some companies obtain authorization to operate autonomous drones beyond the visual line of sight, which means that you don't need a pilot on the ground with a line of sight onto the drone. And so that's a significant milestone that we've just crossed, and so you're probably going to see a lot more deployments going forward.

     

    Lauren Hein:

    Very cool. All right. Thank you. Jeremie. We're going to come back to you in a bit, but first, Lisa, let's talk about how we're entering a world of well-connected care. We're going to talk a lot about the internet of things in this section, so maybe also talk, define the internet of things before we really get going, and talk about healthcare applications for the IoT.

     

    Lisa Chai:

    Oh, definitely. I think primarily what you're really seeing is that the healthcare industry is really going through this major transformation driven by rising costs, physician burnout, lack of nurses, and patients definitely demanding just better health care. Who likes their healthcare process and their plans? So we're really seeing advancements right now in healthcare technology. And we think that next year is really a strong year for areas like personalized medicine and areas like IoT that you mentioned. So medical IOT, we're super bullish. We think right now these medical devices that are wearable and portable are really needed. They're non-invasive, and it provides real-time monitoring, and improving patient experience around access to healthcare data, and connect them to healthcare providers. So we're really bullish as a technology that has really improved through better cloud technologies and better wifi connectivity and adoption of AI. AI is finally here in healthcare. So we now have devices that you can wear, that are wearable sensors, that track real-time health care data. So physicians can keep an eye on you as you leave the hospital or the doctor's office.

     

    Lauren Hein:

    Very much hearing an extension of last year's theme that data analytics and AI are going to drive efficiencies in health care. It sounds like that was pretty spot-on last year. Talk to me a little bit about companies within the health tech index. I'm assuming there's also some crossover with the artificial intelligence index, but companies that are really integral to this space, to this developing technology.

     

    Lisa Chai:

    Yes. Within the healthcare technology innovation strategy, we have two subsectors where that really capture this exposure. One area is in Medical Instruments. So these are companies that not just provide surgical tools, but also the IoT devices. And then the other subsector would be Telehealth. And these two subsectors really capture this bullish trend that we're going to see in 2023 with a tremendous amount of growth behind it. Some of the index members that are really leading this transformation are companies like Dexcom. Dexcom has developed a transmitter device that you wear that measures and sends real-time glucose data wirelessly to the physician. So you don't need to have this painful fingerprint that's very invasive. They've really changed the game.

    Index members like iRhythm, Abbot, and Medtronic, are also companies that have really led the revolution transformation around cardiac monitoring devices. So whether it's using cardiac monitors or certain types of pacemakers, you're definitely seeing the cardiovascular market really transforming, where it's non-invasive, they're portable, and you're able to communicate with your physicians, and they could keep an eye on you as you leave the hospital for surgical procedures. So these are really game-changing in our minds, and we think that HTEC strategy really captures many of these companies that are really transforming healthcare.

     

    Lauren Hein:

    So I'm hearing that these seem to be right now used in more post-care aftercare patient follow-up applications. Is there a world where we use more medical IoT in diagnostics, or do you have any thoughts about that?

     

    Lisa Chai:

    Yes, I think you're going to see both of these wearables that give you biosensing technologies. So it could measure your heartbeat and alert and give you detection on whether you are about to have some healthcare issues. So you're definitely seeing a world converging of that diagnostic giving that real-time alert. And then the AI really improving and helping the analytics side. And now because the cloud has really improved, and the wifi connectivity has really improved, we're able to get the data really quickly and get the medical help that you really need. So you got the diagnostic side and obviously on the post-surgical side, and that's very important because that really allows you to have less hospital stay, and you are going to have a better patient outcome. And also the insurers and healthcare companies are also going to see lower expenses for our patients and individuals.

     

    Lauren Hein:

    I just want to confirm also for everyone, the technologies for what you've spoken about, medical IoT devices specifically, are not something we're finding on our smartphones today, not something that's just mass-produced at this point with the rings or a watch. They're more specialized healthcare devices.

     

    Lisa Chai:

    Yes, definitely. I think what you're going to see going forward, we're going to see more solutions and technologies and innovation around patches, wearable patches that could release a certain type of therapy, and that's going to connect to maybe your smartwatch going forward, or also with your diagnostic solution. So we're going to have a world where we're going to have all this data that's going to tie in and integrate it, and it'll send that real-time alert to your medical providers.

     

    Lauren Hein:

    And then lastly, again, to tie it back to the HTEC Index, what subsector do you think this generally falls into? Maybe it's a couple of subsectors. We've talked about a couple of companies already specifically, but where do you classify that within health tech?

     

    Lisa Chai:

    You would find this in the Medical Instrument subsector, which is one of our biggest subsectors within the HTEC strategy. You would also see some of these companies have the presence needed for Telehealth. And Telehealth, we expect that subsector to grow over time as we see all this innovation happening, as we get more data and analyze this data, and then also be able to enable some of these personalized therapies and medicine to the individuals and patients.

     

    Lauren Hein:

    And we are seeing some bleed over into the AI index as well.

     

    Lisa Chai:

    Yes, exactly. So within the THNQ Index, we have, as you know, an extensive amount of AI scoring in terms of purity of AI revenue. So many of these companies that have the healthcare exposure, they may not have the AI revenue exposure, but we have a really good list right now where we're really being thorough, in terms of what companies will make it to the index. But at this time, we have several companies that have healthcare exposure, companies like Butterfly, that's got strong AI revenues.

     

    Lauren Hein:

    Very nice. Zeno, we're going to pivot to you, if that's okay. Let's talk about breaking barriers between the physical and digital worlds. Augmented reality in virtual reality. Maybe start with some definitions there, and then let's talk through why you think this is an exciting theme for 2023.

     

    Zeno Mercer:

    Right. So obviously, to take a step back here, it was a big year last year when Meta rebranded Meta as part of the metaverse. So I think just throw that out there. And then thinking forward, we've got augmented reality and virtual reality. So augmented reality would be an overlay technology or visual screen, there are a number of different types of modalities this could occur, maybe on your dashboard, contact lenses or glasses, or a headset, but essentially it's augmenting reality. It's a digital overlay. It could be audio, it could be visual, but ultimately it's an understanding, a digital understanding of what's happening around you and the ability for that to provide insights that are customized to you. Virtual reality would be more in a siloed sense of just being in its own virtual world, so not really having anything to do with what's around you.

    And that could have many different applications, but ultimately it doesn't require as much, there's a lot of processing to create these virtual worlds, but it doesn't require real time processing of the world around you. Right now you're seeing probably one of the bigger Christmas holiday gift items would be virtuality headsets from Facebook or Meta and from Microsoft. And mostly for gaming right now. And so right now, I think a lot of people think of AR/VR as just the proxy for a new form of gaming, but there's really a lot more to it.

     

    Lauren Hein:

    Do you want to take a stab at defining the metaverse?

     

    Zeno Mercer:

    Sure. I think it's a word that goes way beyond the simplified single word, metaverse, that we use. But essentially there are two different forms of the metaverse. There is the augmented reality metaverse, which actually incorporates and understands the real world, that's physics, chemistry, what item and objects are and the classification of those items, and how they interact with the world. And then there's the pure metaverse form that maybe Meta and Zuckerberg would imagine, which is just living and interacting purely in this digital world, which I think is scary to some people that we're going to be this matrix drone society. But if you think about how we already communicate and have developed this society. People have been glued the TVs and PCs, mobile phones, and now we've got smartwatches. They're really just ways of painting, communicating and sharing, and having different experiences, across different life stages and different forms of entertainment or learning.

    So I think if you're looking forward, starting next year, you're really going to start to see more news announcements of technology that will be coming on board. Even recently, there were rumors going around that Apple's working on glasses, augmented reality glasses, which we could probably guess would be a little bit better than Alphabet's Google glasses that were released, at this point, over a decade ago now. So I think it's really not hit people yet that in a decade from now, people might not be carrying cell phones anymore. We're going to have a different tech modality that's really brought in by the infrastructure and software and many different industries colliding to create a more seamless experience that better integrates into our lives. The average adult Google searches three to five times a day. That information could be more real-time and synced to your daily life, and really benefit people, both kids, and teachers, as well as the aging population on how to navigate the world and get help in real-time. So we're really excited about the positive benefits that can occur from the utilization and uptick of this space.

     

    Lauren Hein:

    So the trends report does a really nice job of laying out a lot of applications for augmented and virtual reality technologies. It feels a little bit today maybe we think that it's all just gaming, and then we imagine ourselves living in a totally virtual world in the future, but there is certainly a spectrum. Do you want to talk about any other applications for this technology that are applicable more today?

     

    Zeno Mercer:

    Yeah, sure. So I think one of the more direct segues from gaming would be education. If you think about how each person learns, they go to a classroom, if they're lucky, they get tutoring, if they're even luckier, they have access to technology and things that can understand how they learn, what they know, where they progress. And that's both from a testing side and a learning side. So I think you'll see across numerous disciplines, mathematics, physics, and history, there are going to be more and more ways of personalizing this education so they can understand how each individual learns. This can also expand through sports and other physical learning such as golf or what have you, where it can understand how you're stroking. You've got, as we covered earlier about wearables, you'll see wearables also apply to this augmented and virtual reality where it can literally give you visual and voice cues that are automated to help you learn how to do things better, maybe even cooking.

    So I really like education, learning, and coaching. There's also collaboration. Right now we're on this call, we're all in different places, but technically we're here together right now, and the audience here, even if they're here watching this later, they're here in this moment. In the future, this collaboration, each one of us is looking at maybe a TV screen or a monitor and look into a camera. In the future, it'll be even better. You'll have more personalized dashboards, more information will be popping up on your screen that prompt you and give you visual cues. And so even working together, each person will be able to work in their own style, but each person on the other side of it will also have their own unique angle without impacting the others' experience. So this personalized customer experience will really improve organizational collaboration.

    And then in the real world, going back into the augmented reality side of things, think about just navigating a city or a new experience. Maybe you pull out your phone and figure out how to go on Google Maps. In reality, you'll have this augmented reality headset. You can do this now with Google Maps where you hold up your phone and it can show you which direction to go, but you're still not hands free. And I think that the next step is this hands-free, seamless integration of technology that is designed to help you. Let's hopefully avoid the Meta world where it's just flooded with advertisements and it's actually beneficial technology that's giving you the information that you want and need in real-time.

     

    Lauren Hein:

    So this particular conversation feels very specific to think THNQ, the AI index. You can correct me if I'm wrong on that, but are there any particular companies that you're really excited about?

     

    Zeno Mercer:

    Yeah, I think I'll quickly add another area you mentioned. This is definitely very AI-focused, AI is empowering the technology to create, understand, and implement this, the infrastructure and application side. But there's a concept known as digital t win, which is essentially recreating, and I alluded to this, but it's recreating the physical world and digital world. This could even be for the human body. So think healthcare. So there are lots of applications already currently being developed and deployed, such as navigating surgical, the surgical space of understanding and doing pre-op, personalized implants that are made using 3D generation software that matches the individual. And so we're already seeing real impact from this, it just hasn't been called necessarily AR/VR, which is more of how we would be using it. So some companies that I'm really excited about that we have exposure to at ROBO would be, on the infrastructure side, none of this would be possible without advanced AI semiconductor chips.

    So companies like Nvidia making AI chips. They've recently been in the news and part of global trade wars about how powerful these chips are because they really enable a fast understanding of deep learning and how things work. They're faster at crunching these numbers. They're faster at real-time processing, which is important for these applications. I think it's also important to note that Nvidia isn't just a hardware company. They also have software that they're really diving into deeply. And as an example, they've recently launched a 3D modeling platform, which essentially lets you type in text and it'll give you 3D mesh modeling that you could actually implement in the games or other experiences. So we're really seeing massive progress in the AI space and how it can apply to the different subsets of society here. So there's semi, the next step would be the networking and other infrastructure that goes into place, like security.

    So let's say you have this AI, you have this augmented reality, you have this. How does it all connect? How does it understand what you're seeing? You need to have sensors and real-time processing. So you've got massive data storage. If we're going basically from a text to image to video to real time 4D society in the digital, massive data scalability is required and networking capabilities. So you've got companies like Pure Storage and Arista Networks that are really powerful plays here. On the other side, you're going to have, computer vision for augmented reality. So companies like Ambarella, which we've mentioned in other trends. I think that's one thing to highlight real quickly is that while we're talking about these trends, we try to find companies that are already powerful and market leaders and have great technology, but they're actually able to play into different mega trends that could see massive trillion dollar, five trillion dollar markets that are not in existence today, really.

    I wanted to briefly highlight that. So we've got now Network & Security. On the security side, we also have cybersecurity. As more and more of our interactions are digitized, as the services that we interact with are automated, our identity and security are very important. Back in the day, and I'm saying this almost facetiously, you would go to a bank in person, there'd be a security guard there, and maybe there's a gold vault. Well, now it's more about protecting your digital identity to make sure that you're the person accessing it on your own accord. And that throughout the journey of accessing and transmitting data and money that there's no third party accessing this data or manipulating it. And so the cybersecurity component with companies like CloudFlare, Gen Digital, and CrowdStrike, are very important and will become even more important as this progresses. I think it would also be remiss to not talk about the companies that have already been building in the 3D space for some time.

    This would be companies like Dassault, Autodesk, and Adobe, who are basically pioneers and leaders in the digital 3D space. But I think I'll also briefly talk about, I've mentioned Meta in this call, and we actually don't hold Meta. They're really a very consumer-focused advertising company, and that's the core of their revenue. We would rather hold Microsoft as a metaverse play, and in general AI play, because we believe they're making much better moves as an AI company in the metaverse play with their partnerships with Open AI for enabling these newer technologies to actually be in the hands of individuals and consumers in a more positive, impactful way. So we have Microsoft in our AI (THNQ) index. I think that covers most of the subsectors here, but I have to say that almost all of them in some way will come to play into this space at some point in time.

     

    Lauren Hein:

    All right. The last question I have for you, then we'll move back to Jeremie and talk about reshoring. This particular section of the trends report does have a lot of focus on venture capital investing in these startups over the last year or really two years maybe. Do you see our index constituents making acquisitions? Do you see companies actually IPOing into this space that could be potential index constituents? Any sort of trends you're watching for next year?

     

    Zeno Mercer:

    Yes. So ultimately around the startups in this space and metaverses, 3D imaging modeling, it all comes down to really AI. AI is the component that's going to give these companies a leg up or advantage in developing and deploying these technologies. That also is looking at the infrastructure plays, the connectivity to allow real-time connections between the devices that we will be wearing, and the backend cloud infrastructure. In terms of acquisitions, we're already seeing M&A in the space across security, and across AI. There are a lot of startups that are developing this space, but I think people also discount, and maybe fear at the same time, what companies like Nvidia are capable of doing. With their recent 3D modeling mesh development they just pushed out, which probably just knocked a lot of startups out of the competition by itself. So I think it's important to look at which companies actually have really defensible tech that will be acquired by these big tech companies because they will look to rapidly develop and maintain share as the world switches over to this new paradigm.

     

    Lauren Hein:

    Which is why market and technology leadership are key in our constituents' investment process. All right, Jeremie, let's talk about reshoring. Reshoring is the final of our themes that we're looking at for 2023. We've talked about semiconductors a lot here today, and we've actually had the CHIPS act passed in 2022. That will be reassuring a lot of semiconductor manufacturing. But talk generally about the reshoring trend that you see for the next year.

     

    Jeremie Capron:

    Okay. Well look, I think one of the most important turning points in the global macro is about the end of globalization, and really a change in that trend that has peaked over the last five years or so. And so started a few years ago with the commercial trade war between the US and China. We had the pandemic. Now we have geopolitics coming to the forefront, and so our view is that the trend of reshoring is going to gain traction, and there's increasingly clear evidence of that. So you mentioned the CHIPS Act, that's one, but a series of major US policies enacted in the past few months are really pointing towards that. And we think that this trend will create a major tailwind for robotics and industrial automation. And it's not like automation needs a booster in the current environment, because when you think about the problems we're facing today, the labor shortages, inflation, and rising costs across the board, the one clear answer to that from a business leader's perspective has been automating.

    And so corporations have started investing at a much faster pace, over the past two years. In fact, demand for automation today is at record highs and it's growing, and there's more demand for robots and automation than providers can supply. But in addition to that, those macro changes around globalization or the end of it are going to have a very important impact. This is protectionism, deglobalization, we can call it French shoring or reshoring from China into the higher cost locations in Europe. In the US you have the aging of the population, the restriction of migration, the impact of global climate change, and cyber warfare, as Zeno just touched on cyber security. All of that is really leading to a much more conscious effort to manufacture locally. And robotics automation is the enabler of that, the enabler of competitive manufacturing. And again, we're already spending unprecedented amounts on that. In fact, in the second quarter of the year, robotics orders in North America were up 25%, year on year, and in the first quarter, they were up 28%. So we're off to a very, very strong year in 22. We think that trends will continue into the next few years.

     

    Lauren Hein:

    Major companies benefiting from that trend? And then the next question I'm going to ask you, are any specific industries you really see leaning into reshoring?

     

    Jeremie Capron:

    Yeah, so the beneficiaries are some of the usual suspects, like the leading robotics companies like Fanuc, or Yaskawa in Japan, ABB, Sweden, Switzerland. You have KUKA, also one of the top players in industrial robots. But you also have the companies that participate in automation control systems like Rockwell Automation here in the US, you have the computer vision players like Cognex. Collaborative robots, companies like Teradyne, that owns Universal Robot. That's got the top market share in collaborative robots that can work alongside humans in the workshop. So those are some of the obvious one, but there is a series of secondary beneficiaries. You think about the actuation, you think about the control system, the software layer that Zeno also talked about.

     

    Lauren Hein:

    Any specific industries that you see reshoring? The trend really accelerates in the near term, obviously, it sounds like basically everything could be impacted, but in the near term, maybe in 2023?

     

    Jeremie Capron:

    Yeah. So the most obvious one to everyone is semiconductors, because we just had the CHIPS Act passed, and that's earmarking 40, 50 billion dollars towards domestic manufacturing of chips. And immediately following this announcement by the White House, we've seen major announcements for Micron and Qualcomm, and Taiwan Semiconductor, all building new multi-billion dollar plants. And so all the infrastructure is going to support this, is coming along as well. Then we had the 2021 Infrastructure Act that's also allocating billions of dollars to high-tech infrastructure across the country. There's a major push towards electric vehicles that we already talked about. And it's important for investors to understand that the manufacturing of electric vehicles implies a lot more automation than traditional cars. And that's because of the intensity of the use of robotics to manipulate batteries, for example, the whole electric powertrain manufacturing requires more robots and more control systems. So that's another major tailwind here.

     

    Lauren Hein:

    Yeah, sounds like this high conviction theme is going to be heavy in the ROBO Index with some crossover again, into maybe AI specifically.

     

    Jeremie Capron:

    Yes, I agree. ROBO has very direct exposure to all we just talked about, from industrial automation to control systems, computer vision, actuation, but there are also going to be some AI elements to it. So you'll find some degree of exposure in the AI index as well.

     

    Lauren Hein:

    Well, I want to break because I want to open up the floor to questions. Also, I want to remind everyone listening that if you'd like to receive regular updates from us, you can sign up for our newsletter. But man, Jeremie, Zeno, Lisa, thank you for being here. We're going to let the audience take it from here.

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