You are here
Investing in automation
IT IS a trend that continues to preoccupy entrepreneurs. From the days of the first industrial robot in the mid-1900s to the sensor-laden world today, the potential to automate our lives is seemingly endless. Step out of your office, and a self-driving car might take you home. Reach your doorstep and you can command a device to play your favourite music.
Smart robots have not taken over the world, yet. But they continue to take over tasks traditionally performed by humans. Today, there are only 74 robots for every 10,000 workers in the manufacturing sector of developed countries excluding Japan, according to the International Federation of Robotics, an industry organisation. This ratio is even lower in emerging markets, which employ just 15 robots for every 10,000 workers.
Robots are proving to be able helpers. As labour markets tighten and a number of economies reach full employment, cobots, or collaborative robots, can continue to gain favour with businesses. Cobots make repetitive or physically challenging tasks safer for workers. They also ensure higher work quality and are more productive. Beyond factories and logistics fulfilment centres, cobots can also assist people in their everyday lives and help in areas like elder care.
The increasing digitalisation of our homes, our industries, and our cities is giving rise to opportunities in the field of artificial intelligence (AI). This refers to human-like intelligence in machines, used to solve the challenges society faces such as energy consumption, traffic flow, and healthcare costs. Whether in medical imaging and diagnosis, or in creating a perfect retail store experience, there are increasingly more concrete test cases of AI reaching full commercialisation.
Healthcare a key growth area
While the headlines focus on the large industrial and tech names expanding their AI and robotics capabilities, smaller firms and start-ups are enjoying increased funding and stronger interest around mergers and acquisitions.
A key growth area is healthcare. The medical hardware and equipment space has been revolutionised with the introduction of robotics, which improves the precision and speed of surgical and treatment procedures. Yet it is perhaps in the medical imaging field where the use of AI-enabled automation can blossom.
Give a machine an X-ray to read, and it might be able to, from its database of thousands of similar X-rays, diagnose a problem you might have – all without the help of a doctor. Research firm Tractica identifies medical imaging as the most important use case in the healthcare AI market, be it in software, hardware, or services. This market can reach US$19.3 billion by 2025, according to the firm.
Outside of healthcare, another key growth area is logistics, such as storage planning or lastmile delivery. The use of AI can lead to in-sourcing: companies solving complex logistics problems themselves, instead of relying on outside help. Meanwhile, autonomous vehicles like drones, self-driving cars, or robo-taxis can reduce the economic costs of traffic jams, or offer new services for consumers and businesses.
Yet the growth of the robotics and AI market can lead to challenges such as regulation. The potential for global adoption might be limited as governments fear the consequences of technology and data being centralised in the hands of a select number of firms.
How to invest
So how does one invest in the robotics and AI space? We believe there are opportunities in smaller technology companies which are run by their entrepreneur founders. On the other end of the spectrum, legacy companies with disruptive technologies and which demonstrate a clear innovation focus can also be interesting investments.
Exchange-traded funds (ETF) investing in the sector are easy to access and low-cost. Another option is investing in diversified funds dedicated to the AI or robotics space. These funds tend to invest in more small and mid-cap firms, which offer a different risk-reward profile compared to an ETF.
Investors might also like to note that the market for service robots – robots doing tasks outside of the factory, including for personal, commercial or even military use – is larger than the market for industrial robots. Service robots include drone taxis, bakery robots, or surgery robots.
Meanwhile, more data-intensive sectors like financials, software, media, and healthcare might attract greater investor attention.
We believe the main beneficiary of AI and robotics is the IT sector. Those considering investing in robotics and AI equities will need to have a diversified exposure in this space. The market capitalisation of the IT sector has thus grown over time to become a quarter of total global market capitalisation.
At Credit Suisse, we witnessed good levels of participation from our clients in technologyrelated investment opportunities from as early as 2016, when we also anchored the launch of a robotics equity strategy. Client interest in robotics, and more broadly technology, remains intact throughout market cycles. In a volatile 2018, our fundraising for a digital health strategy, which has relatively meaningful robotics exposure, also achieved sizeable net sales.
Ultimately, AI and robotics are becoming more pervasive across all sorts of fields, even in traditional sectors like agriculture. AI and robotics are thus what we at Credit Suisse deem as a long-term investment theme: A supertrend. W
The writer is fund solutions specialist, Credit Suisse Private Banking Asia Pacific