Ka-Ching! AI and Robotics Investment Enters Mainstream

Investing in new technologies such as robotics and artificial intelligence was until recently an area for investment angels and venture capitalists. But as the technologies mature, investment is becoming more mainstream.

Not only are more hi-tech companies listing on sharemarkets around the world, but the sector is now spawning trackable indices and financial derivative products which are the hallmarks of more extended established industries.

Part of that is due to the growth of the sector, which has been even stronger than many forecasts.

In the robotics industry, for example, consulting group BCG forecast in 2014 that by 2025 global robotics would produce USD 67 billion in revenue.

Last year, that forecast was hiked by another USD 20 billion as robotics penetrates consumer markets and is coupled with AI and machine learning across a breadth of new consumer-facing platforms.

While the US and China face off in a trade war, it would seem that China is already well ahead in AI, according to a joint study by the Massachusetts Institute of Technology and BCG released last week.

In China, the goal is to build an AI industry worth USD 150 billion by 2030.

The investment community is nothing if not alert to these opportunities, and venture capital is increasingly active. According to Angel List, there are 3,500 AI startups around the world, with an average valuation of USD 5 million.

One of the most significant funding rounds for a robotics startup was completed earlier this month. Singaporean/Indian warehousing automation company Grey Orange raised USD 140 million in a Series C investment led by US-based Mithril Capital, co-founded by PayPal entrepreneur Peter Thiel.

But while venture capital is global, it has been more difficult for retail investors to get a piece of the AI and robotic action.

One significant step is the creation of several indices that track the performance of shares in the sector. These indices have themselves helped to spin off Exchange Traded Funds (ETF) products.

European company Lyxor Asset Management, a subsidiary of France’s Societe Generale, estimates that ETFs in this sector have attracted EUR 1 billion in investment this year, taking the total to EUR 3.7 billion.

The ROBO Global Robotics and Automation Index was launched in August 2013 and now comprises 80 different stocks from fourteen global markets. The company also offers an ETF based on the index which is available around the world.

Growth in 2017 was 46%, although 2018 was subdued, with the year to date growth only at 0.66%. Investors who put USD 1,000 into a fund tracking the index at launch in 2013 would have seen their investment grow to around USD 2,500.

This month, several other ETF products were launched to track the robotics and AI industries.

In the UK, Lyxor launched a robotics ETF that holds 150 stocks, while in Australia, Beta Shares announced a Global Robotics and Artificial Intelligence ETF.  

In its pitch to the market, Beta Shares said the robotics sector is forecast to grow over 30% per annum while AI software will grow 55% by 2025.

In the US, Defiance ETF’s was founded on the principle of giving retail investors access to “disruption.”

The company launched a Quantum ETF fund this month with a focus on quantum computing based on an underlying index, the BlueStar Quantum Computing and Machine Learning Index (BQTUM), comprising around 60 different stocks across the US, Japan, Korea, and China spanning all levels of market capitalizations.

The index has doubled since its launch in 2015, well outperforming the S&P 500.

Beyond ETFs, of course, there are a plethora of specialized funds. Many of them launched by boutique managers such as Sydney-based Macrovue, which opened an AI fund in April.

Macrovue claims the fund has increased by 20% in its first four months of operation.

Such funds take the stress out of stock selection for investors, many of whom would struggle to identify and access likely AI firms they could directly invest.

One Australian exception, however, is machine learning natural language processing company Appen which is already kicking goals for investors.

Shares in the company were AUD .70 three years ago, and are at more than AUD 13 today, giving it a market capitalization of AUD 1.47 billion.

Investors in Appen are buying blue sky, given that its annual revenues are barely AUD 300 million.

Unlike some young tech companies, Appen is at least showing profits with a half year result of AUD 23.9 million, up 87% for the six months to June 30 this year.

As in any sector, AI investments can go down just as they can go up.

Investors in Australian-listed AI company Brainchip rode that rollercoaster when shares dropped from AUD .33 to AUD .10, before surging 17% to AUD .17 last week.

It is an example that shows that while AI and robotics technology is new, some of the laws of investment remain age-old.