By Bill Studebaker, CIO & President, ROBO Global
Blink and you might miss something. That was certainly the lesson that was evident throughout the month of July when the days, the markets, and COVID all moved at a shockingly fast pace. As that pace continues, it is more important than ever for investors to be diligent and careful. Now is the time to take precautions and to stay invested—particularly in the theme of robotics and artificial intelligence.
In July, the ROBO Index rallied 5.49%, while the THNQ Index slightly exceeded last month’s gains, rising 8.03% compared to the ACWI’s 5.28%. The pandemic continues to spotlight the importance of robotics, automation, and AI, and companies that are developing and delivering these technologies and applications are finally hitting their stride.
The big question, as always, is what’s next?
Bulls would argue that the re-opening of the economy is happening, and a vaccine is on its way. They point to improving economic data, and the fact that corporations are streamlining cost structures that will bring significant operating leverage next year. Bulls are confident in the seemingly infinite liquidity, and the fact that easing of financial conditions and a lower-interest rate environment support higher valuations to come.
In contrast, bears would argue that COVID is out of control and that this new phase of the pandemic will stall the re-opening. More people will be unemployed for longer, the fiscal stimulus won’t be enough to curve the fiscal cliff, sequential data is slowing and still far below pre-COVID absolute levels, valuations are stretched, elections are on the horizon, and US-China tensions remain. Whew! Did I miss anything on either side? Has anything at all changed over the last few months?
Of course, the bull/bear debate is just one of many that investors have to consider moving forward. Among the other contentious debates are growth vs. cyclicals, US vs. international, large cap vs. small cap, and tech vs. everything else. The result is a prisoner’s dilemma: not everyone can win. Today, the only real indicator is COVID, and all markets are being determined by the impact of the pandemic. As the pundits argue away, robotics and artificial intelligence continue to serve on the front lines of the battle, and that reality is driving a new and powerful wave of growth.
One great illustration of this growth is ServiceNow, a company that is represented in both indices. ServiceNow delivered another strong quarter with billings growth of 26% above Street expectations. Results show continued strength across the product portfolio, including the company’s IT automation suite and its non-IT products such as CSM and HR solutions. ServiceNow is already becoming a key strategic partner to customers that are accelerating their digital transformation efforts. The solid performance and number of large deals indicate the company’s critical role in the enterprise technology stack despite a challenging macro backdrop and elevated expectations from the past few quarters.
As the pandemic situation improves, ServiceNow and other companies in the theme of robotics and AI companies should experience continued acceleration as customers around the globe seek new and innovative ways to automate their businesses. Regardless of who ‘wins’ any of the many debates, robotics and AI are being framed as tomorrow’s true victors.