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RISE OF THE ROBOTS


August 2016
Kajanga Kulatunga, Portfolio Specialist, NAB Asset Management


We take a closer look at how advances in robotics are revolutionising our world.


Robotics, automation and artificial intelligence have come under scrutiny lately, mainly due to worries of humans losing jobs and pay. However, if we take a closer look at some of the best advances from companies that investors can access through their portfolio, it reveals that robots can continue to complement and enhance our lives rather than threaten them.


One of the most interesting themes of the last five years has been the rise of artificial intelligence and the vast disruptive potential it holds. It has become a mainstream topic thanks in large part to the number of people who have been left out of work as a result of technological change. Rather than celebrating the possibilities, society has endured a ping-pong match between so-called techno-optimists, who see tremendous technological advances at a pace the world hasn’t seen before, and techo-pessimists who argue that the optimists are dreaming, using history and statistics like economic productivity to support their argument. As with many innovations, some people may end up being negatively affected, however, hopefully in the long-run, societies globally will be better off due to these changes, and investors benefit from participating in the right type of company at the right time.


The two most important advances that have helped the artificial intelligence and robotics industry in the last decade  have been the ability to closely replicate the thumb and the retina of the human eye. The thumb (along with the index finger) provides us with the dexterity to perform an amazingly complex array of daily tasks. The retina meanwhile provides significant input for a range of key brain activities that drive emotions and decision making. These innovations, in using software to replicate the complex operation of these two organs, have led to an explosion of other advances.


Take Boston headquartered Cognex, the world leader in vision systems for manufacturing automation as an example. They produce machine vision systems which are used at various stages of manufacturing for a variety of functions, including quality assurance. Advances in the use of artificial intelligence have led the firm’s products to be widely used in a range of industries and situations ranging from intricate surgical robots to large-scale industrial machines.


Chart 1: Cognex share price history


The trend towards automation accelerated in the aftermath of the GFC. Cognex stock prices increased elevenfold between 2009 and 2015.





Source: FactSet. Data from 30 June 2006 to 30 June 2016.


Vision and dexterity are critical when it comes to surgery.  There is no better example of advances in precision robotics than the robots produced by Intuitive Surgical, a company based in California that produced the world’s first surgical robotics system in 1999. Their invention has enabled and enhanced the use of keyhole surgery for a range of ailments. Their biggest advancement was the invention of a robotic hand which can rotate further than the human hand, providing surgeons with more options during surgery and greater control.


Chart 2: Intuitive surgical share price history


Investors in Intuitive Surgical have benefited over the past seven years, as share price increases have been almost eightfold since 2009.
 




Source: FactSet. Data from 30 June 2006 to 30 June 2016.


Another company to benefit from these advances, albeit on a more diversified scale on the robotic spectrum, is Japanese company FANUC, the largest maker of industrial robots. For decades, FANUC has provided a range of industrial robots that sit in large manufacturing plants. Recent technological advances have enabled far more complex tasks in a manufacturing process, previously performed by humans, to now be completely handled by their robot hands. This sophistication has come from developments within the computer numerical control (CNC) systems area at FANUC. This is where computer programs are written to control and operate machines. Some of the new advances include the ability of these machines to learn for themselves and change processes.


Chart 3: Fanuc share price history


While FANUC’s share price has cooled recently and advanced less than both Cognex and Intuitive Surgical, its rise is indicative of the trend robotics has achieved in the past eight years and also indicative of the diversified nature of FANUC’s business.




Source: FactSet. Data from 30 June 2006 to 30 June 2016.


These are but a handful of examples where developments in artificial intelligence and robotics are advancing processes, products and output, performing critical functions for us or sometimes on us. Investors in the companies we’ve featured have shared in their financial success by taking a risk and investing in the initial stages of development of this intriguing industry.


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