Why invest in the future growth of robotics, automation and AI?

As baby boomers retire, the working age populations in many of the world’s largest economies is forecast to begin contracting. Companies are having to think of alternative solutions in preparation for labour shortages.

One answer is to begin to make greater use of robotics (see chart, below), automation and AI. These trends have certainly captured the imagination of investors and of course there is a substantial risk of them getting over-hyped.

Nevertheless, the logic behind the excitement is irrefutable.

Automation is a long-standing trend that has rapidly expanded from narrow industrial processes to whole swathes of the services sectors. Generative AI, based on language models, raises the stakes materially.

“Picks and shovels” companies facilitating new technology

The launch of ChatGPT in November 2022, a generative AI model that provides credible answers to almost any language-based question, has created renewed enthusiasm for companies seen as automation winners, notably in the technology sector.

By augmenting, enhancing, and perhaps replacing a portion of work tasks AI could bring with it immense changes and create significant opportunities for investors.

It’s the “picks and shovels” companies facilitating the new technology, whether that be the makers of the microchips or operators of the cloud computing facilities processing and storing the large amounts of data involved, that seem well placed to benefit.

Impact of AI is likely to stretch way beyond the technology sector

A detailed study by Goldman Sachs Investment Research has found that around two-thirds of current workers’ roles are exposed to some degree to automation.

It discovered around a quarter of current work tasks (as opposed to jobs) could be substituted by AI[i].

Estimates on the potential benefits from technology vary widely. A Mckinsey & Co report estimates that generative AI could add $2.6 trillion - $4.4 trillion annually to the global economy[ii].

PWC estimate the contribution to GDP at $15.7 trillion by 2030, which would be an equivalent boost to the global economy of up to 14%[iii].

Whatever the scale and pace, the ultimate impact of AI is likely to stretch way beyond the technology sector and into almost every part of the economy.

That said, the technology sector is home to some of the most profitable and cashflow generative in the world today.

They seem well set to benefit from automation trends, and are among a range of equities, which combined, can offer multi-asset investors an attractive mix of equity income and capital growth.

Sources of global equity income and capital growth

These businesses, and other constituents of a wider grouping which we've identified as “global high growth" companies, are, however, only one category of equities well placed to benefit from major growth themes in the global economy.

We also see another distinct category of companies in the energy and materials sectors benefiting from a “commodity renaissance”, for instance.

Meanwhile, globally diversified infrastructure and real estate companies, our so-called “global inflation beneficiaries”, provide further diversification and opportunities, as do certain Japanese shares.

[i] The Potentially Large Effects of Artificial Intelligence on Economic Growth.

[ii] The economic potential of generative AI: The next productivity frontier.

[iii] Sizing the prize: What’s the real value of AI for your business and how can you capitalise?