Robots will take over, so you may as well profit

Moore's Law is the steam engine of the 21st century. Just as the steam engine made way for machines to replace muscle, serving as the catalyst for the Industrial Revolution, today the exponential increase in technology is leading to an evolution in robotics well beyond its original auto-manufacturing applications.

AeroVironment's small unmanned aircraft, the Raven Gimbal
Courtesy AeroVironment, Inc
AeroVironment's small unmanned aircraft, the Raven Gimbal

Worldwide spending on robotics is expected to grow at a 9 percent CAGR through 2025, according to a report from the Boston Consulting Group. That's an increase in market size from an estimated $27 billion in 2015 to $67 billion in 2025. In addition, the Robotics Industry Association saw an increase in U.S. robot sales of 16 percent in the first half of 2014 compared to the same period in 2013, and growth is coming from multiple industries, including military, commercial, industrial and personal applications. A record 14,135 robots, valued at $788 million, were ordered from North American robotics companies in the first half of 2014. Expected growth rates in the non-industrial space are expected to accelerate rapidly—commercial at 12.3 percent and personal at 17.4 percent.

As you look across the robotics landscape, there are a number of notable names that may come to mind, from the "cute" robots that consumer electronics companies roll out for the holidays to the big acquisitions being made by Silicon Valley companies, including Google.

If you really want to understand where robotics is heading, the following three themes—and the companies working on them, which generally are not well known outside their niches—can serve as a good introduction to the broader applications of this industry that are still yet to come.

1. Drones aren't just for spying and bombing.

Unmanned aircraft systems (UAS) may be best known for military and defense use, but commercialization of the sector is occurring as recent technological developments have led to more uses for UAS at reduced costs and required manpower.

AeroVironment is one company making the move from a military history to a broader range of business clients. Thanks to its long history of working with the Department of Defense, AeroVironment has already logged an estimated 1 million miles of flights to date. In June the company received the first-ever FAA commercial license for unmanned aircraft operations over land and water for its work with BP on Alaska's North Slope, part of a big push to develop oil and gas in remote areas with the help of UAVs.

Geographic information system and mapping capabilities that go hand-in-hand with UAVs have many applications across multiple industries, from bridge, road and pipeline mapping to tracking the path of wildfires and identifying hotspots to assist firefighters, crop monitoring and insect detection for farmers, and real-time imaging for search and rescue operations. AeroVironment, for example, has seen its annual revenue nearly doubled since 2006 to $250 million.

2. Underwater vehicles are making inroads offshore.

The ocean represents 71 percent of our planet's surface, and it is a major source for critical natural resources. Among the biggest issues oil-and-gas-exploration companies face in the search for new sources of hydrocarbons is putting humans or high-value assets at risk. But it's not just drones exploring for new, harder-to-tap sources of oil and gas.

Remotely operated underwater vehicles (ROV) are becoming critical in offshore oil- and natural gas–drilling operations. The ROVs are operated from the surface and can perform underwater hardware installation, pipeline inspection, dredging and various maintenance and repair services. You may also recall that ROVs were used as part of the search for the missing Malaysian Airlines flight earlier this year.

The biggest player here is Oceaneering, which at the end of last year operated about 35 percent of ROVs worldwide and held a global market share of roughly 60 percent, nearly triple that of the next closest competitor. The company's annual revenue has increased by 80 percent since 2009 to $3.3 billion.

3. Even our robot overlords need mechanics and doctors.

With many industries being transformed by robots, robots will constantly have to get better at what they do. That's where a company like Japanese manufacturing firm Nabtesco comes in, producing reduction gears for precise movement, torque control and shock resistance in industrial robots. Precision reduction gears use a small motor to generate power and torque by reducing its rotational speed. Precision reduction gears can reduce robotic movement errors to as small as 0.1 millimeters on robot arms that are 3 meters long.

Nabtesco's reduction gears are most prevalent in industries where robots have already made a big dent: automobile assembly lines, health care and semiconductor manufacturing. Since the start of 2009, revenue is up 23 percent to $2 billion.

You have nothing to fear but ...

The rise of robotics will raise important social questions regarding its impact on the workforce, but investors should note these questions revolve around when and how it happens, not if it happens.

A recent Pew Research Center survey of scientists and other analysts showed a deep divide in opinions on the economic and employment implications of robotics. The vast majority cited in the survey expects that robotics "will permeate wide segments of daily life by 2025, with huge implications for a range of industries such as health care, transport and logistics, customer service and home maintenance."

Are the robots stealing our jobs? Here is what the experts told Pew:

  • Almost half of the experts (48 percent) think robots and digital agents will displace significant numbers of blue- and white-collar workers. (One unexpected area where robots are already taking jobs from humans is on cruise ships, which became the occasion for some quips from a one-time cast member of the original "Love Boat." Really!)
  • Fifty-two percent of the experts do not think technology will displace more jobs than it creates by 2025.
  • The more pessimistic experts think job displacement will lead to vast increases in income inequality, masses of unemployed people and a breakdown in social structure.
  • The optimists contend the situation will be little different from the way human creativity has led to new jobs and industries since the Industrial Revolution.

Just as the steam engine changed the economic landscape leading into the 20th century, advanced computing power and lower costs will move robots from structured, repetitive task environments to unstructured environments where they are equipped to sense, plan and act independently. As history has shown, the rapid adoption of more productive and affordable technology is pretty close to a sure thing.

By Travis Briggs, CEO of ROBO-STOX, which created the first global robotics index and ETF.