Fresh from a research trip to Japan, Clare Pleydell-Bouverie and Storm Uru believe that if 2024 was the year of AI, then 2025 is set to be the year of the robot. They discuss the three key recent technological breakthroughs for robotics.
Simon [00:00:09] Welcome to this Global Innovation video with Clare and Storm to talk about Japan and why this is going to be the year of the robotics. Clare, to start with you, you've recently been to Japan. Why were you there and what's the opportunity?
Clare [00:00:22] Japan has really almost single-handedly driven the penetration of robotics over the past half century. And if 2024 was the year of the AI agent, so digitising the enterprise, we believe that 2025 is set to be the year the robot. Now, ChatGPT really was the start of the AI revolution and the key technological breakthrough there was the large language model. So these predict the next word in a sentence. With robotics, there have been three key technological breakthroughs that have really converged and get us to this point. The first has been around the vision transformer. So just as ChatGPT predicts that next word, these predict the next pixel. So robots can finally see. The second has been around synthetic data generation. If we want to train a robot to put milk in the fridge, we've got to train it on an awful amount of both real world and synthetic data. And the key surprise for us in Q4 of last year, was learning that training these models on synthetic data, you're now getting as good a quality output, if not better than training them on real world data. Then finally is post-training, so reinforcement learning. This used to be done by armies of human data labelers. It's now being done by AI with humans in the loop. So this massively collapses the iteration loop. So when we think about the opportunity for robotics over the next 5, 10 years, we are expecting over 6 million robots to be deployed globally. That's growing at a compound rate of about 25% per year. First of all, we've got collaborative robots working with people. Payback periods here are already falling under 18 months. We then have service robots that actually go away and do a task for you, go and put the milk in the fridge, and then finally we've got humanoid robotics. The technology is already there. We've got humanoid robots but the economics don't quite work yet. We have got to see another design cycle or two.
Simon [00:02:31] So did you find that Japan is leading the way in this field?
Clare [00:02:34] So Japanese companies certainly have first mover advantage, and that was precisely the question that we set out to answer on our trip. Do these incumbents have the right to win in this new cycle of robotics?
Simon [00:02:47] And Storm, who did you find will be the winners? Is it the incumbents or are they emerging companies in Japan?
Storm [00:02:53] So what we've found is not too dissimilar to what we're finding, is key insights across many different industries. And that is that the market leaders within the robotics industry do not have the right to win over the next decade. So even though they've automated the factories and the factory floors over the last 40 years, they're not actually in the best position to go forward and capture this enormous opportunity that Clare just laid out. We're talking about one of the biggest structural trends that that have existed over the last century and we're starting from a standing start. So the opportunity set for us as investors is significant, but you cannot rely on investing in the winners of the last decade. And the reason why is because Chinese companies have moved from imitators to innovators. So that means that the whole robotics industry has now turned into a red ocean where it's very, very competitive. So the question that we're asking ourselves is who has positioned themselves at this particular point of the cycle to win going forward.
Simon [00:03:54] And Clare, what were the other key takeaways you took from the trip?
Clare [00:03:57] So some Japanese incumbents that Storm has just mentioned who are in this innovators dilemma are actually pivoting the business. And these are the types of companies we think might be able to hold on to that first mover advantage. The key takeaway for us really meeting companies across the entire ecosystem is that low-end robotics is commoditizing at a pace that's really eye watering. And this is owing to Chinese competition. High end and high-touch, we think value still can be found, so think of a FANUC or a Keyence who really dominate the high end of robotics. FANUC alone commands a 16% market share, one in four factories has got a FANUC robot on its floor. But ultimately we think that the winners in this new cycle of robotics will see value accruing to different layers of the technology stack, not necessarily the hardware. And this is where the likes of NVIDIA, Tesla, come in with their full stack. So NVIDIA is shipping what is going to be the foundation model for humanoid robotics. If you can ship the silicon and the software models that actually train these robots across all OEMs, then you capture a royalty layer for the next decade.
Simon [00:05:20] Great, thank you Clare. Thank you Storm. And thank you for watching. We'll see you for the next Global Innovation video.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Global Innovation team:
- May consider environmental, social and governance ("ESG") characteristics of issuers when selecting investments for the Funds.
- May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
- May have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
- Do not guarantee a level of income.
The risks detailed above are reflective of the full range of Funds managed by the Global Innovation team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
