Robotics Equity Investment: Time to Add Machines to Your Portfolio?
Angus Muirhead, in-house robotics investment specialist at Credit Suisse, outlines the latest trends in industrial robots, artificial intelligence and automation and discusses the potential and pitfalls of this space when it comes to equity investment.
Credit Suisse: Artificial intelligence has been a hot topic recently. Have you seen increased interest in investing in robotics?
Angus Muirhead: Yes, this is a very clear trend. However, I think it is more helpful to talk about automation, because when you use the word "robotics" many people imagine a physical factory robot. But if you think of "automation" (either software or hardware) it is much easier to see that an ATM is a robot, and so is your dishwasher and your Nespresso machine. Robots have been around for a long time, but interest is rising because we are seeing much smarter automation systems at very low prices. This dynamic is creating a much larger market opportunity than ever before, which could explain the rising interest in robotics equity investments.
Is it already too late to invest in robotics then?
No, it is not. The levels of penetration of robotics are still very low: we don't yet have fully autonomous vehicles on the road, most people don't have a robot vacuum cleaner, and much of the manufacturing sector is only now starting to experiment with robotics. So we believe we still have a long way to go and this is just the very start.
How can investors position themselves to benefit most from automation?
I would recommend a diversified approach and a long term investment horizon. But investors should also recognize this is a specialist technology area. It is not as easy as just reading a newspaper article and then buying the names mentioned, because quite often these are the legacy incumbents. We need to do some serious homework to understand which companies have the critical technology and the competitive advantage to become dominant over the next 5 to 10 years, and then to be highly selective in our investments.
In what sectors do you think we will see the biggest influence of automation?
In terms of the greatest market opportunity, the greatest impact is likely to remain in manufacturing because most manufacturers do not use robotics at all, or only in a very limited way.
Today, to justify the cost, the danger and the difficulty of use, only manufacturers with very large volume and a very narrow product range use robots. But current technologies are reducing the cost significantly as well as making robots easier and safer to use. As this happens, opportunities to use robots in manufacturing sectors will expand massively.
There are also greenfield opportunities for automation, robots and artificial intelligence in the healthcare sector, in infrastructure where "smart cities" is becoming a buzz-word, and more on the software-side of automation in the white-collar office environment. I think these areas will experience the biggest impact because until now there haven't been that many robots in use.
Where would you predict the fastest growth: artificial intelligence or precision engineering or both of them combined?
In technology you typically see a shift in value from hardware to software and increasingly today to big data analytics and artificial intelligence. I think the same will be true in robotics. Increasingly "smart" software, in particular systems that use aspects of artificial intelligence, is a big part of what is making robotics and automation systems more useful and valuable to more and more industries. It is too early though to predict who will be the winners in artificial intelligence because although we have come a long way, we are still at a very early stage. I expect we will see hundreds of new startups over the next few years in physical robotics as well as software and artificial intelligence, quite often designed for very specific tasks.
What problems are we likely to face with the accelerating technology?
Throughout history, innovation and technology have repeatedly disrupted the work force and frequently led to social unrest. Some areas of the economy are clearly more vulnerable than others. In supermarkets, for example, the automated checkout is fast replacing cashiers, just as ATMs have over the last 40 years replaced many bank tellers. While it is easy to complain about such disruption, I think the reality is that it is very difficult to try to stop the progress of technology. Perhaps the best course of action is to provide education and support to allow people to benefit from the increasing prevalence of robotics and technology more broadly, rather than be threatened by it.
Another issue which needs to be considered carefully is that of security. The more automation systems we introduce into the world and the more reliant we become on them, the more critical cyber-security becomes. Who would want to fully automate their home, or to sit in a self-driving car, if there is a reasonable risk of it being hacked? We think that security will become an increasingly powerful theme in the world, driven to a large extent by technology proliferation, but also by shifting demographics and global inequality.
So maybe we should trust humans rather than machines?
I think we naturally trust people more than we trust machines, but I am not convinced this is always the most logical instinct. In many areas it is likely that humans assisted by robotics and artificial intelligence will, by working together, produce much more accurate results, more efficiently, more consistently and perhaps even more safely. We're already seeing examples of this in robotic surgery, in advanced driver-assistance systems, and in big data analytics.
But the areas where we allow machines to operate with full autonomy are likely to be closely scrutinized by regulators and governments. We repeatedly see a perception bias, that says it is ok for humans to make mistakes, but absolutely unacceptable for a machine to make a mistake. The thinking is that if a machine makes a mistake it must be broken, but if a human makes a mistake, well, that's just part of being human.
Machines, and particularly machines which use artificial intelligence, have huge potential to improve our human world, and make positive changes to the life of normal people around the world. As we see and understand these benefits, it is likely we will become more trusting.