After spending this week digging into robotics, I keep coming back to one conclusion:
We’re still very early.
That doesn’t mean every robotics stock is going higher. It doesn’t mean humanoid robots will be walking around every neighborhood five years from now. And it certainly doesn’t mean investors should chase every company that adds the word “robotics” to an investor presentation.
What it does mean is that we’re witnessing the beginning of a technological shift that could eventually become much larger than most investors appreciate today.
The iPhone Playbook
Think back to the launch of the iPhone in 2007. It was obvious almost immediately that Apple (AAPL) had created something special, but it would’ve been impossible to predict everything that followed.
UBER, Instagram, and DoorDash (DASH) didn’t exist. Airbnb (ABNB) was barely getting started. Entire industries that eventually became worth trillions of dollars were made possible because smartphones put a powerful computer, camera, GPS system, and internet connection in everyone’s pocket.
That’s how I think about robotics today.
We’re spending a lot of time trying to predict what the first generation of humanoid robots will do. Will they work in factories? Warehouses? Hospitals? Homes?
Probably all of the above eventually. But I’m much more interested in what happens after millions of intelligent machines begin interacting with the physical world. That’s where the opportunity gets really big.
Earlier this week, we discussed Amazon’s (AMZN) fleet of more than one million robots.
We looked at humanoids working alongside employees at BMW’s Spartanburg factory.
We examined China’s rapidly expanding robotics industry and the enormous ecosystem of components required to build these machines.
And yesterday, we drilled down into permanent magnets, one of the critical technologies that allows robots to move.
Put all of those pieces together and you begin to understand why I don’t think investors should approach robotics as a single industry. It’s an ecosystem.
There will be companies building humanoid robots, but there will also be companies supplying sensors, cameras, electric motors, actuators, precision gears, batteries, semiconductors, connectors, software, and permanent magnets.
Other businesses will integrate robots into factories and warehouses, and eventually entirely new companies will emerge around applications that don’t even exist yet.
That’s where my investment strategy becomes relatively simple. I don’t need to predict which humanoid robot wins. I’d rather identify the technologies that every winner will need.
Robotics and the Innovation Curve
As of today, I place robotics in Stage 1 of the McCall Innovation Curve.
The technology works, commercial adoption has begun, and we’re seeing robots perform real jobs in the real world.
What we haven’t seen yet is the widespread revenue acceleration among many of the pure-play robotics companies that I’d expect as the industry moves into Stage 2.
That’s what makes this stage so interesting to me. Waiting until robots are everywhere may provide more certainty, but by then Wall Street will understand the opportunity too.
Stage 1 is where uncertainty remains high, but it’s also where some of the greatest upside can exist for investors willing to identify the right companies before adoption begins accelerating.
This is the same approach I’ve used throughout my career when investing in major technological shifts.
During the internet revolution, the opportunity wasn’t limited to the companies building websites. During the smartphone revolution, it wasn’t limited to Apple. And during the first phase of AI, some of the biggest winners have been the companies supplying chips, networking equipment, data centers, and electricity.
I don’t expect Physical AI to be any different.
There will be plenty of hype along the way. Some robotics companies will receive enormous valuations before generating meaningful revenue. Others will build impressive technology that never becomes a profitable business. There will be corrections, bankruptcies, and probably more than a few robots that look incredible on YouTube but never make anyone a dime. That’s normal.
Every major technological revolution produces winners and losers.
The goal isn’t to avoid the revolution because some companies will fail. It’s to understand where the technology is headed and identify the businesses with the strongest chance of benefiting as adoption moves from thousands of intelligent machines to millions.
That’s why you need to be paying attention now. Physical AI isn’t something I’m expecting to play out over the next six months. I’m looking at the next 5 to 10 years.
AI spent the last few years learning how to think. Now it’s learning how to move.
That shift will create an entirely new generation of investment opportunities. Luckily for you, you’ve already made the first move.
Three Stocks to Watch
· Amphenol (APH): Supplies connectors and interconnect systems that allow increasingly complex machines to communicate and transfer power.
· Harmonic Drive Systems (6324.JP): Makes precision reduction gears used in robotic joints where accuracy and compact size are critical.
· PTC (PTC): Industrial software company whose digital-twin and product-development technologies help manufacturers design and manage increasingly complex machines.
The robot companies will get most of the headlines.
I’ll be watching the companies that make the robots possible.
Here’s to the future,
Matt McCall
Editor, Market Insights
