Merrill Lynch recently took a thematic look at the investment landscape of how the world is changing and what might be the best plays going forward. As part of its work on “A Transforming World,” (ATW) Merrill Lynch identified a few categories seeing the most change and what investors should look for in each.
Here we’re looking closely at robots and artificial intelligence (AI), and how these could play a huge role in the future. Already, robots and AI are becoming an integral part of our daily lives as providers of labor, mobility, safety, convenience and entertainment.
Looking back to 2014, this marked the third consecutive year for record sales of robots worldwide (229,000, +29% year over year). The Internet of Things (IoT), big data, cloud computing and 3D printing have meant exponential advancements in the space, while global structural drivers, such as demographics, energy efficiency, productivity, urbanization and wage inflation, suggest long-term sustained growth. Merrill Lynch expects that robots likely will be performing 45% of manufacturing tasks by 2025, compared with 10% today.
Right now, humans are facing a paradigm shift that undoubtedly will change the way we live and work. Merrill Lynch anticipates the greatest potential challenges arising from its ATW theme of People, notably the possible displacement of human labor (with 47% of U.S. jobs having the potential to be automated) and growth in inequality (with an estimated 10% supply and demand gap between skilled and nonskilled workers by 2020). The brokerage firm also anticipates issues around cybersecurity (an estimated 50 billion connected devices by 2020), privacy and longer-term existential threats being posed by AI.
Merrill Lynch put some numbers behind its conjectures:
We estimate the robots and AI solutions market will grow to $153 billion by 2020E, comprising $83 billion for robot and robotics, and $70 billion for AI-based analytics. We anticipate $14 trillion – $33 trillion in annual creative disruption impact in 10 years, including $8 trillion – $9 trillion of cost reductions across manufacturing and healthcare, $9 trillion cuts in employment costs via AI-enabled automation of knowledge work and $1.9 trillion in efficiency gains via autonomous cars and drones. Adoption of robots and AI could boost productivity by 30% in many industries, while cutting manufacturing labour costs by 18%-33%.
The brokerage firm has identified eight entry points for investors who want to play the robots and AI theme (with some examples for each):
- AI: Alphabet Inc. (NASDAQ: GOOGL) and International Business Machines Corp. (NYSE: IBM)
- Aerospace and Defense (including drones): Lockheed Martin Corp. (NYSE: LMT)
- Autos and Transport: TE Connectivity Ltd. (NYSE: TEL), Qualcomm Inc. (NASDAQ: QCOM) and NVIDIA Corp. (NASDAQ: NVDA)
- Financials: Black Knight Financial Services Inc. (NYSE: BKFS)
- Health Care: Intuitive Surgical Inc. (NASDAQ: ISRG)
- Industrials: Eaton Corp. PLC (NYSE: ETN) and Honeywell International Inc. (NYSE: HON)
- Services (domestic)
- Agriculture and Mining