Key Points
While some are patiently waiting for the artificial intelligence (AI) bubble to burst, many analysts continue to project that the market will experience incredible growth and revolutionize other industries along the way. Take AI robotics: According to some projections, this niche will be worth about $375.8 billion by 2035 and register a compound annual growth rate of 17.33% through then. Investors who identify the companies likely to lead this revolution could earn amazing returns along the way. Let’s consider two candidates: Tesla (NASDAQ: TSLA) and Amazon (NASDAQ: AMZN).
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1. Tesla
Tesla recently announced that it would discontinue its Model S and Model X electric vehicles (EVs). The company’s Model 3 and Model Y account for the overwhelming majority of deliveries, hence the decision to prioritize them over other, less-in-demand models. Besides that, Tesla is also making a strategic shift toward robotics. The company will repurpose factory space dedicated to discontinued models to produce its Optimus humanoid robots. These will be AI-powered machines capable of performing many otherwise tedious everyday tasks. According to Tesla’s CEO, Elon Musk, the company will begin selling them by the end of 2027.
Musk’s timeline for model or product releases is often a bit off. Still, the company is investing heavily this year to make its plans a reality. Once its robots are on the market, Tesla will likely follow a similar blueprint to its EVs, unlocking high-margin recurring revenue through services, remote software upgrades, etc.
If the company can expand its installed base of robots and create a sticky, hard-to-leave ecosystem, it could ride the AI robotics wave for a while. There are significant risks, including potential legal and regulatory issues, or, simply, Tesla’s robots could fail to live up to the hype. Even so, if Tesla can capture this opportunity the way it hopes, its struggling EV sales won’t be a problem anymore as revenue and earnings could soar over the next decade, along with its stock price.
2. Amazon
Amazon has been ramping up its efforts in the robotics market over the past few years. The company is increasingly using AI-powered robots to optimize its warehouses. It launched a million of them just last year. The tech leader also offers Astro, a home-monitoring and security robot, to some customers in a limited capacity. Recently, Amazon announced the acquisition of Fauna Robotics, a start-up that makes friendly, approachable humanoid robots for the home and for businesses.
Amazon is arguably lagging behind Tesla — which has been developing Optimus in-house for years — in the robotics market. However, Amazon has a habit of becoming a leader in many of the niches it enters. The company’s internal focus on innovation, as well as its significant cash balance — cash, equivalents, and marketable securities were $123 billion as of the fourth quarter — are also major strengths that could allow it to catch up in this potentially highly lucrative market.
Of course, there are many other reasons to invest in Amazon, including its market-leading positions in e-commerce and cloud computing, its fast-growing, high-margin advertising business, a strong economic moat, etc. It might be a while before its robotics work has a significant impact on its financial results. But if this market becomes as big as the projections claim, don’t discount Amazon.
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Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
