Friday, February 02, 2024
By the end of this decade, robots will outnumber humans.
OK, that's not quite accurate with respect to the global population. But according to one of the most successful names in finance, it will be the case for the world's biggest company.
You see, Cathie Wood, CEO of investment-management firm Ark Invest, believes robot workers could surpass the number of human employees working at Amazon (AMZN) by 2030. Noted Wood in a recent CNBC article, "Amazon is adding about a thousand robots a day... We are just at the dawn of the robotics age."
Amazon's not the only one ushering in this new age, either. Labor shortages across the U.S. are driving thousands of companies to invest in robotics, particularly those that can work alongside humans.
This explains why the market for robotics and automation is growing more than 17% a year and will be worth nearly $150 billion by 2030.
How can we position ourselves to profit from this growth?
To give you an idea of how big this trend is getting, consider this:
According to online recruiter Zippia, the global-robotics industry boasts annual revenues of $43.8 billion. Nearly three million industrial robots are working right now and around 400,000 new robots are being built each year.
But this is merely the beginning. In a recent Zippia survey, 88% of companies said they plan to increase their use of robotics.
After all, the labor market is tight. The unemployment rate is just 3.7%, well below the 5% threshold that economists consider to be stable in the long run. And the number of unfilled jobs has been hovering between nine million and eleven million since the summer of 2021.
To fill positions, some companies have been luring potential employees with higher wages. Meanwhile, other companies have been looking into alternatives – i.e., robots.
It should come as no surprise, then, that the Association for Advancing Automation reports that robot sales recently hit a quarterly high for the third quarter in a row.
The market for collaborative robots ("cobots") has been growing especially fast. These are robots that work with humans and offer direct help. In 2021, sales of cobots increased 40%, easily recovering from the Covid-induced slowdown.
And with more growth on the way, it's time for us to dive into this market with a specific investment opportunity...
Today, I'm focused on a Massachusetts-based maker of automatic testing equipment that is a key supplier and partner to any company looking to make robots. Founded by two former classmates at Massachusetts Institute of Technology (MIT), this firm pioneered the field of automatic testing for defects in the 1960s. Let me explain...
You see, historically, critical parts and components had to be checked for quality by hand, often by engineers and scientists in labs. This created a huge bottleneck for getting products out the door. Today's rapid production of tiny microchips, circuit boards, and other electronics would have been impossible to check under that system.
This company created machines that can automatically run a series of tests on electronics. Initially, this meant simple on/off tests of components called diodes. But now it includes testing a full range of processors, chips, circuit boards, wireless modems, digital screens, and more. The company's tools can even run a battery of tests on fully assembled devices like wireless routers, digital cameras, smartphones, and televisions.
This company supplies the testing equipment to key electronics companies like Samsung, Intel (INTC), Qualcomm (QCOM), Texas Instruments (TXN), and several large defense contractors. Chances are that any electronic gadget in your car or home has gone through tests using equipment from this company.
As you might imagine, this kind of testing is particularly important in robotics, where a series of systems work together to ensure robots do what they're meant to do, quickly and safely.
Every camera and sensor needs to be tested and retested before it's put into a robot. And every circuit board and processor has to work exactly right. The sooner any faults are detected, the cheaper the costs to repair or replace the part are for the producer. That's why this company is in prime position to soar.
Increased demand for robots will mean increased demand for better sensors, faster and more complex microchips, and for higher-bandwidth wireless communication to link robots together with machine learning algorithms. In short, the global rise of robotics will come with higher demand for this company's automatic testing equipment.
The company I’m referring to is Teradyne (Nasdaq: TER), a steady performer in a volatile market.
Between 2018 and 2023, Teradyne nearly tripled the returns of the S&P 500. And it’s on pace to double earnings over the next four years, meaning returns for investors should continue to come rolling in.
Cheers and Good Investing,
Chief Investment Officer
Trend Trader Daily