Robotics Software Could Be a $140B Opportunity

June 30, 2017

The dawn of the robotics era will have wide-reaching market implications.

By Wayne Duggan, Contributor | June 26, 2017, at 11:39 a.m.
http://money.usnews.com/investing/articles/2017-06-26/robotics-software-could-be-a-140-billion-investment-opportunity

Tech investors are very familiar with the three main classes of cloud computing, software-as-a-service, infrastructure-as-a-service and platform-as-a-service. However, within the next eight years, the robotics business could give rise to a new $200 billion cloud services industry.

The robotics-as-a-service era is rapidly approaching. The shift toward automation will no doubt raise demand for robotics hardware, but Loup Ventures analyst Andrew Murphy says the robotics software industry could be even bigger.

Loup estimates that the global robotics hardware business will expand from roughly $20.9 billion in 2016 to $73.0 billion by 2025. However, the firm projects that the robotics software industry could grow to $140 billion in size by that time.

Murphy says robotics hardware may soon be commoditized, leaving software as the true long-term growth opportunity. “For that reason, we believe investing in companies with a software- or service-focused business model will be the more attractive way to play the growing robotics theme given these approaches are more scalable and, arguably, more defensible,” Murphy writes.

Robot control software will be used to operate robots but artificial intelligence software will likely be slowly integrated over time. Murphy says another huge growth area will be real-time data analytics, which companies will use to fine-tune the efficiency of their automated processes.

As the number of unmanned drones, driverless vehicles and other mobile robots increases, traffic control systems will also be needed. Loup estimates that drones and other robots will be delivering packages on a meaningful scale within the next five years. Amazon.com (ticker: AMZN) and Alphabet (GOOG, GOOGL) are reportedly already working on the first generation of drone traffic control systems.

Due to the high cost of robotics hardware and the expertise required to use it effectively, Murphy says some robotics-as-a-service companies will likely lease hardware and provide operating technicians as well.

“This service model is common within the commercial drone industry, where businesses may not have the pilot expertise to operate a drone and, in the end, the drone user is primarily after the data gathered,” Murphy writes.

With such wide-reaching implications, the coming of the robotics-as-a-service era will provide plenty of investment opportunities. The RaaS age may not have arrived just yet, but investors will be watching cloud software giants such as Salesforce.com, Inc. (CRM), Microsoft Corp. (MSFT) Adobe Systems (ADBE) and others to identify which companies emerge as early market leaders in robotics software.

Wayne Duggan |Contributor

Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book “Beating Wall Street With Common Sense,” which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.