Robotics sector looks primed for further growth in 2024
- Automation demand is backed by supportive legislation in the US and globally
- AI adoption should help to further boost the sector’s growth
- Innovation and product cycles should support growth in 2024 and beyond
The favorable backdrop which growth equities enjoyed during the COVID-19 period of 2020 and 2021 – when the robotics and technology sectors performed strongly – came to a halt in 2022 as energy and defense moved to into investors’ crosshairs because of the troubled geopolitical environment.
During this period, businesses and sectors that struggled during the lockdown were once again able to operate normally, and investors shifted their attention to reopening themes.1 In this phase of more abundant growth, a broad range of companies and sectors were able to demonstrate abnormally high growth, and thus genuine structural growth companies were no longer scarce and lost their scarcity premium.
When markets become less driven by unusual macroeconomic forces, the stand-out innovators with attractive fundamentals found within the robotics market could provide structural, long-term growth.
Investor interest is broader than just traditional robotics. Many are considering a wide range of companies, exposed to different end markets, including robotic surgery, machine vision, warehouse automation, artificial intelligence (AI), autonomous vehicles, and several other exciting growth areas.
Right now, there are many reasons why investors are optimistic: not only did the technology sector markedly rebound in 2023, but markets are seeing an abundance of innovation, new product cycles, and a potential cyclical upturn for the robotics sector in 2024
A global opportunity, with government support
While Asia remains the largest regional market for industrial robotics – China and Japan occupy the first and second places, respectively – other major economies are forecast to continue to invest heavily in 2024. The US is the third-largest market for robotics,2 and this is likely to increase following the introduction of significant supportive legislation.3
- Infrastructure Investment and Jobs Act: $1.2tn in Federal spending, with net additional funding of $550bn
- CHIPS and Science Act: $250bn boosting American semiconductor research, development, manufacturing, and workforce development
- Inflation Reduction Act: Within this Act, $370bn to invest in, and incentivize, clean energy production and manufacturing
The scale and ambition of these acts – and the industries they’re targeting – provide a clear picture of the importance the US is placing on re-shoring and bolstering its domestic technology capabilities and partnerships.
This trend can be seen as a response to sustained geopolitical challenges and supply chain volatility. Together, these acts should empower the US to strengthen its global positioning, market share, and stability. Capital expenditure underpinned by the government is less economically sensitive than it typically is, and this is resulting in large scale project announcements.
So far, only a fraction of the anticipated spend has occurred, and the activity associated with this is forecast to peak in 2026 but extend well into the remainder of the decade. While the US acts are arguably the most high-profile, there are also similar policies in place across the EU, Japan, Korea, and many other economies that should help spur similar investment activity.
Supply chains and e-commerce – overcoming the pandemic contradiction
The warehouse automation market has faced the lingering legacy of the pandemic. Substantial order numbers accelerated through 2020 and 2021 on the increased usage of e-commerce, resulting in some overcapacity as global economies reopened post COVID-19’s lockdowns.6
During 2022 and 2023, markets have been through a period of digestion as that excess capacity gets absorbed, and this contributed to slowing automation orders. However, there are tentative signs this trend is bottoming out and may return to growth in 2024 onwards.7
The International Federation of Robotics (IFR) agrees – its 2023 World Robotics Report highlights sustained record numbers of robot installations, with Asia leading the demand and with significant uptake from the consumer-led automotive and electronics industries.8
The report forecasts the demand for robot installations will diverge even in a potential economic slowdown and predicts a new worldwide annual installation record of over 600,000 units.
Similarly, industry experts are forecasting the year-on-year growth rate for orders should have bottomed out around the end of 2023, before picking up again in 2024 and 2025. 9
Semiconductors were heavily affected by supply chain volatility during the pandemic, which had a knock-on effect on both industrial machines and consumer electronics markets. The US CHIPS and Science Act provides just one example of government response to address this – tens of billions of dollars have been earmarked for semiconductor facility investments from countries around the globe since 2021 to support domestic manufacturing – in the EU, Korea, and Japan, for example.10
Industry revenues declined in 2023 but are expected to bounce back in 2024.11 In late 2023 IDC, a technology research firm, updated its expectations for semiconductor market growth to be around 20% in 2024.12 After a tough 2023 for revenue growth, this is meaningfully above average and a would represent a significant cyclical upswing.
Appetite for innovation
Companies within the robotics and technology space are generally at the cutting edge of research and development. This is particularly evident within industries such as semiconductors and electric vehicles (EVs), and we believe 2024 should see a cyclical recovery in the automation and semiconductor markets.
One of the key drivers behind the increased expectations for the semiconductor industry is the increasing demand for AI. As its capabilities and applications grow, it becomes increasingly disruptive – but this evolution requires vast amounts of data and processing power, which semiconductors can provide.
Emerging generative AI and large language models, such as the highly publicized ChatGPT, depend upon higher memory speeds and capacities. This, combined with AI’s increasing cross-sector penetration and its adaptability across the infrastructure, technology, and application level, are likely to fuel the expected demand for semiconductors. Currently, most of the revenues for the AI industry are from the infrastructure segment – these are the semiconductors and computing power that is driving the industry. Companies like Nvidia, AMD, and Cadence Design Systems, a software company focussed on designing chips, should be well positioned in this context.
EVs are benefitting from the additional pressure on governments to address the threat of climate change and obligations to net-zero commitments. While adoption trends vary significantly around the globe, EVs are widely expected to overtake internal combustion engines; this consensus only differs when it comes to the estimated time horizon.
Current barriers to EV uptake are largely based around cost and infrastructure, both of which have the potential to be mitigated by significant investments in capacity.
Global spending commitments supporting the clean energy transition – which hit a record $358 billion in the first half of 2023 – could help expedite the necessary grid and infrastructure improvements. In 2023, there was roughly $750 of semiconductor content in an internal combustion engine car compared to $1,300 of semiconductor content in an EV.
With EVs forecast to contain $2,000 of semiconductor content by the end of the decade, this should set the scene for further long-term demand from the automobile sector. 13
Companies shown are for illustrative purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute an offer to buy or sell any investments.
Risk Warning: Investment involves risk including the loss of capital.
The information has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. This analysis and conclusions are the expression of an opinion, based on available data at a specific date. Due to the subjective aspect of these analyses, the effective evolution of the economic variables and values of the financial markets could be significantly different for the projections, forecast, anticipations and hypothesis which are communicated in this material.