Of the many hyper-growth themes emerging today, artificial intelligence (AI) and robotics are among those sure to have the most profound impact on day-to-day life.
With that status comes significant investigation implications, making AI and robotics exchange traded funds some of the more compelling and, potentially durable, options in the world of thematic funds. ETFs are practical avenues for investors searching for AI and robotics exposure because this still nascent arena is difficult to stock pick in and many of the names investors initially view as AI or robotics plays aren't yet generating significant portions of revenue from those fields.
The Global X Robotics & Artificial Intelligence ETF (BOTZ) solves those conundrums. BOTZ, which recently turned four years old, has $1.72 billion in assets under management, confirming that there's demand to tap into AI and robotics investing.
What makes BOTZ a compelling long-term growth idea is the sheer depth of the markets the fund addresses. Many investors are familiar with the concepts of industrial robots working in Amazon (AMZN) warehouses or efforts by Tesla (TSLA) and others to develop autonomous vehicles. However, there's much more to these universes than just two applications.
Advanced robotics are now cornerstones in the surgical field while declining technology costs are giving rise to increased used of automation – a driver for AI – across myriad industries. Those are just two examples of favorable tailwinds behind BOTZ.
Thematic Durability
A critical element to the AI/Robotics thesis is that it's durable. Focusing on automation for a moment, it simply makes good, long-term business sense.
“Automation can help companies reshore operations, reduce labor costs, and mitigate potential supply chain disruptions,” said Morningstar analyst Alex Bryan in a recent note. “Machines don’t get sick or tired, they don’t form unions, and they tend to be more consistent than humans, allowing for greater quality control. Simple repetitive tasks are most conducive to automation, but technological advances are allowing machines to handle more-complex tasks, from enabling vehicles to drive themselves to analyzing medical images.”
Big data is powering AI growth and that reaches into arenas such as financial services, logistics automation and e-commerce, confirming a widespread opportunity set for many BOTZ components. There are other implications as well. Consider OpenAI’s new GPT-3 software.
“At this point, the toolset can pen poetry and text messages, compose music, generate computer code, and seamlessly answer questions. GPT-3 is still in private beta and only a few hundred developers have access to the software,” according to Global X research. “However, those who do are making quick use of it. One developer is using the toolset to automate email responses; another is using it to build characters in text-based computer games.”
Growth at a Reasonable Price
Many of the 31 holdings in BOTZ, including Nvidia (NVDA) and Intuitive Surgical (ISRG), are classified as growth stocks and the ETF reflected as much with an estimated price-to-earnings for 2020 of 47.46x. By no means is that inexpensive. However, that's just one metric and it doesn't paint the entire picture.
“Valuations here are high but not extreme. The fund’s holdings look expensive relative to forward earnings, but they look cheaper relative to book value and sales, trading at lower multiples of those metrics than the constituents of the Russell 1000 Growth Index,” notes Morningstar's Bryan. “Consensus long-term earnings growth estimates presented in Morningstar Direct suggest the market has similar growth expectations for the holdings of this fund and the Russell 1000 Growth Index.”
Bottom line: BOTZ may not be cheap in the strictest sense of the word, but it's not excessively expensive, either. Its growth could be worth paying for.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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