3 Robotics Stocks Set to Explode Higher
The AI boom has been nothing short of remarkable, with companies like OpenAI reaching meteoric valuations almost overnight. But while the hype around generative text models like ChatGPT is red-hot, I believe the stratospheric growth of these large language models is unsustainable. The AI landscape is becoming fiercely competitive, and these text-based AI companies will struggle to keep dazzling Wall Street.
That’s why I argue investors should shift their sights to robotics, and companies specifically involved in industrial and warehouse robotics. This area of robotics has far fewer players than conversational AI, giving leading companies huge competitive moats. Additionally, their growth runways are massive, as demand for automation solutions has never been higher.
With the labor market still painfully tight, companies are desperate to automate certain roles. With global supply chains in turmoil, warehouses and factories need robots to improve efficiency and resilience. Even consumers are beginning to embrace robots for tasks like cleaning and security.
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In other words, while software AI stocks may soon plateau, robotics stocks still have lots of room to run. These companies benefit from searing demand, high barriers to entry, and a blue-collar industry that’s ripe for disruption. Here are the three robotics stocks I’ve got on my watch list now.
ABB Ltd (ABBNY)
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ABB Ltd. (OTCMKTS:ABBNY) is a Switzerland-based industrial automation and robotics leader operating in over 100 countries. Investors often overlook this $65 billion industrial conglomerate. However, ABB is one of the dominant forces in robotics, with over 400,000 industrial robots installed worldwide.
In Q2 2023, ABB continued its strong momentum, delivering 13% revenue growth amidst macroeconomic headwinds. This performance was driven by ABB’s leadership in automation solutions for energy infrastructure and data centers, including industrial applications. Crucially, ABB’s profitability improved substantially, with operational EBITA margins expanding 200 basis points to 17.5%, an all-time high.
Furthermore, ABB sees sustainable tailwinds from energy transition spending, infrastructure investments, and labor shortages necessitating automation. Although some investors worry about a cyclical downturn impacting ABB’s short-cycle businesses, its growth trajectory seems assured by a $21.9 billion order backlog, most of which is linked to resilient automation platforms.
With shares trading at a reasonable 19-times earnings and offering a 2.6% dividend yield, ABBNY stock presents an attractive way to gain robotics exposure alongside stability from its diversified industrial portfolio. The company anticipates at least 10% revenue growth and greater than 16% EBITA margins for 2023.
Rockwell Automation (ROK)
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If Swiss diversification doesn’t excite you, then perhaps consider U.S. manufacturing leader Rockwell Automation (NYSE:ROK). With a market cap of $33 billion, Rockwell is a major player in this space. The company provides automation equipment and services predominantly targeting manufacturing clients, having ridden the capital investment wave in manufacturing over the past few years.
In its fiscal Q3 2023, Rockwell delivered 13.7% sales growth and 13% adjusted earnings per share growth year-over-year. Although the company faced component shortages and logistics issues during the quarter, demand for its automation systems remains robust. Rockwell anticipates full-year fiscal 2023 sales growth of 14-16%, with a 25% increase expected in the company’s adjusted earnings.
Underpinning this growth is Rockwell’s advance into higher-margin software offerings, including cybersecurity, simulation, and cloud-based manufacturing analytics. The company expects 17% growth in high-margin annual recurring revenue this year. Sure, Rockwell’s backlog metric hasn’t been impressive, but that is normal with improving lead times. Management believes order patterns will normalize due to strong underlying demand persisting from manufacturing and machine builder customers.
Finally, ROK stock does trade at a 22-times forward earnings premium, so it’s not cheap. But this valuation is for good reason. Analysts forecast 15% annual earnings growth over the next three years, surpassing other industrial automatons. I believe it can definitely pull off better gains than ABB, but the forward dividend yield here is a little less at 1.7%.
Luminar Technologies (LAZR)
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Looking beyond industrial applications, autonomous vehicles represent an enormous opportunity for robotics technology. That’s where Luminar (NASDAQ:LAZR) comes in.
The startup focuses exclusively on lidar sensors and software for self-driving cars. In Q2 2023, Luminar grew revenue by 63% annually, driven by its partnerships with major automakers. The company aims to achieve quarterly breakeven by the end of 2025 due to increasing lidar adoption in consumer vehicles. While still loss-making, Luminar has won over a dozen commercial contracts from automakers planning to launch autonomous functionality powered by its lidar.
Luminar expects to grow its forward order book from $3.4 billion presently to over $60 billion by the end the decade. It also made progress on industrialization and software deliverables needed to support commercialization. With the global autonomous vehicle market projected to reach $3.4 trillion by 2032, Luminar has vast room for growth if it can cement itself as the lidar standard.
Of course, Luminar faces competition from other lidar players and must convince automakers to incorporate costly lidar sensors more widely. Still, with automakers like Volvo (OTCMKTS:VLVLY) and Polestar (NASDAQ:PSNY) choosing Luminar lidar for their flagship electric SUVs, momentum is building.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.
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