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Investing in the Source: Automation Technologies Are the Next Big Thing

As automation technologies gain ground, investors will see gains in companies that adopt robotics and artificial intelligence. But the real opportunity comes from investing in those that develop and maintain such technologies.

Automation has the ability to produce massive gains in efficiency, lowering the costs of overhead expenses and improving productivity throughout the supply chain. However, there is a bigger reason to be aware of robotics and other automation technologies: they are becoming cheaper. 

Exponential Growth of Robotics and Automation

In 1965, Intel founder Gordon Moore predicted an extraordinarily rapid pace of technological innovation. He noted that the number of transistors on computer chips and the complexity of integrated circuits had doubled every year, making them exponentially cheaper, faster, and smaller. He predicted that this trend would continue into the far future.

Moore’s Law, as his prediction came to be known, has so far proven correct, not only for transistors but for all forms of technology. Technology is becoming cheaper, faster, and smaller – and robotics is no exception, with the price of robots and automation technology already beginning to fall.

As the prices fall, investing in automation technology becomes a realistic possibility for an increasing number of companies. As more and more companies turn to automation, the snowball effect creates a boom. Last year, the International Federation of Robotics (IFR) put year-on-year growth at 8% after worldwide robotics sales topped 240,000 in 2015.1 Yet the projected growth figures are even more telling.

The IFR predicts that there will be 2.3 million robots1 in operation worldwide by 2018 – a massive increase from the 240,000 units sold in 2015.

The Spread of Automation Technologies

The automotive and electronics industries in China are where automation technologies are currently gaining the most ground. “Only a few years ago, there was less than a handful of manufacturers,” says President and CEO of KUKA Robotics Corporation, Joe Gemma.2 “The industry is getting a real stronghold in China by equipping itself to be a producer of robots, as well as a consumer of robots.”

In 2014, China’s automotive industry saw an increase to 21,000 units installed, up from 14,000 the year before, while the country’s electronics industry saw even greater increases. Robot sales and installations grew to 16,000 in 2014, compared to just 6,500 in 2013.2

More importantly, these companies in China are expanding into Silicon Valley. Some of it is venture capital, some of it is the creation of think tanks, but the end result is the same – automation technologies are emerging from the realm of science fiction to become the new standard for the way business is done.

The Real Investment Opportunity

A few years ago, when businesses lowered their costs by moving to cloud computing, the technology companies offering this solution were the big winners.3 They grew with the industry as their technologies sparked the creation of other companies. Now, the focus has shifted to automation technology companies.

Gartner predicts that by 2017, some 75% of large corporations will have at least four automation technologies in their IT management portfolio, while the total number of vendors will increase by 50% (although the number of current vendors will decrease by 20%).4 All of these corporations will need software to run these systems along with an array of new components such as sensors – in other words, one begets the other. Therefore, like the cloud computing technology companies of the last few years, automation technology companies will be the big winners in the coming years.