Bull vs. Bear is a weekly feature where the VettaFi writers’ room takes opposite sides for a debate on controversial stocks, strategies, or market ideas — with plenty of discussion of ETF ideas to play either angle. For this edition of Bull vs. Bear, Evan Harp and James Comtois debate the investment case for the continued development of robotics technology.
James Comtois: Greetings, Evan! We are all interested in the future, for as Criswell predicted, “that is where you and I are going to spend the rest of our lives!” And having combed through the financial trades (as we do each day here in the VettaFi editorial department), I have seen the future, and it is in robotics. Robots are here, and the science and technology behind the design, manufacturing, and application of robots — which will revolutionize labor and production for the better — is primed to grow even more in the future. Having been a lifelong Isaac Asimov fan, I am all for it. So, seeing as you’re dressed in hockey pads and a crash helmet while sporting a pin that says, “STAY AWAY CYCLONS,” I take it you don’t share my enthusiasm for the robotics revolution?
Evan Harp: While I applaud your enthusiasm and fandom of Asimov, as more of a Karel Čapek stan myself, I tend to be less bullish and more bearish… Or, I suppose, less Data-ish and more Lore-ish on robots.
Even putting aside all the alarm bells that go off when I read that police departments want to give guns to robots, I just don’t know that the investment case is all that sound. Part of this is because we haven’t thought through the economic implication of further development of robotics. I think the general consensus is that robots will increase output and “revolutionize” labor by letting more people sit back and reap the rewards. The reality is they could increase inequality and, broadly speaking, actually harm the economy.
Even putting aside the very big and very real moral, ethical, and philosophical issues, I don’t know that it’s an intelligent short-term investment due to lingering headwinds from inflation and ongoing supply chain woes. This earnings call from Intuitive Surgical, a robotics company focusing on surgery (as the name implies), spells it out well. Though they are excited about the long-term prospects, they remain very aware of the short-term stumbling blocks.
Of course, there’s the whole Boston Robotics arming the police thing again. I cannot stress how much I don’t like that.
Comtois: Look, I’ve seen Westworld. I think we’re both in agreement that robots shouldn’t have guns. On the topic of arming robots, I am fully bearish. But saying that this technology should be abandoned because all you of Earth are idiots is like saying Gutenberg should never have invented the printing press because it weakened our memories. In fact, that’s the very type of job that shouldn’t be farmed out to automation.
Despite the catastrophizing Black Mirror-esque headlines, no, robots are not going to replace or destroy us. What they will do, however, is replace the need for humans to do menial, repetitive, and dangerous tasks (such as factory and assembly line work) and provide a level of precision to tasks that humans just can’t offer (such as tasks in surgery and space travel). This, in turn, will greatly improve the working conditions for us fragile meat balloons, who can now focus on jobs that require the creativity and human touch that robots just can’t provide (we’ll still need surgeons and astronauts, for example).
So, for investors wanting to target the long-term viability of robotics, some ETFs target this sector, including the Global X Robotics & Artificial Intelligence ETF (BOTZ), the ROBO Global Robotics & Automation Index ETF (ROBO), the ARK Autonomous Technology & Robotics ETF (ARKQ), and the iShares Robotics and Artificial Intelligence Multisector ETF (IRBO).
Harp: I touched on this earlier, but I don’t think robots are necessarily the magic labor bullet, and the data backs me up here. People say robots will increase efficiency and take menial and dangerous jobs off the market so people can “self-actualize” or do a different, safer, better gig. Surprise, surprise – we already have robots in the workforce! That means we have data. What actually happens is that wages go down and jobs entirely go away. According to this 2020 paper from an MIT professor, for every robot added per 1,000 workers in the U.S., wages decline by 0.42%, and the employment-to-population ratio goes down by 0.2 percentage points. Now, those numbers look small, but when the paper was published in 2020, over 400,000 jobs had already been lost to robotics.
Broadly speaking, robots diminish the spending power of most people except for a tiny slice of people at the top of the capital pie. The truth is that robotics isn’t just a threat to replace “menial” and “dangerous” jobs either – they can theoretically replace any job. For all the audience knows, we’re just two chatbots zinging back and forth at each other [laughs nervously and robotically].
As bleak as all this is though, we’re at least somewhat saved by disastrous supply chains. Semiconductors, which are essential for robotics, have been in the news a lot of late, with Biden looking to shore up America’s ability to produce them. That will take time, and given that most companies on the bleeding edge of semiconductor production are within China’s sphere of influence, supply chains matter. That’s a big, short-term headwind that would keep me out of the space for at least a couple of years, even if I was interested in investing in robotics long-term, especially with tensions mounting between the U.S. and China due to balloon related shenanigans.
Comtois: Yes, there are currently supply chain issues — and issues with nefarious balloons, apparently, but not only will the CHIPS Act pump billions into new U.S.-based chip fabs, but robotics will address supply chain issues by helping with labor shortages and lowering operational costs. Robots don’t need lights, bathrooms, or heat, after all.
And again, you’re right that some short-term issues are occurring. I’m not getting a robot butler like Paulie or Frank just yet. Like getting a robot buddy, investing in robotics is a long-term plan requiring patience. Given the trajectory of the technology, the potential gains in this space could be significant over the long haul.
“Hath not a robot eyes? Hath not a robot hands, organs, dimensions, senses, affections, passions? If you prick us, do we not bleed?” –Johnny 5, Short Circuit 2 (1988)
Harp: No, I definitely don’t think we’re close to a Small Wonder or a M3GAN situation just yet. Even Marvin the Depressed Robot is probably quite a few years away. I do think that, even with the CHIPS act firehosing money, it will still take time to build up that infrastructure, and headwinds will persist. 75% of the world’s chip manufacturing is based in Asia, and the U.S. only accounts for 12%. That’s a huge gap, and it won’t go away overnight.
Ironically, even if the U.S. could just magically wake up one morning with plenty of fabrication centers, a huge talent gap must be filled. That’s right, we lack skilled workers who would know how to make the chips, even if we had enough facilities available to start bridging that gap. (Of course, for further irony, these workers would likely be tapped to create the robot workers that would replace them.)
Speaking of workers, that’s actually a huge potential headwind for robotics as well. There is a lot of political unrest focused on unionization. Many economists, not understanding how death works, have wondered where all the laborers went during the ongoing pandemic. This labor shortage has emboldened workers to start seeing their value, and unions have gained in popularity for the first time in a long time, creating a potential landmine for any product – like robotics – that seeks to replace labor. As great as the long-term prognosis is for robotics, there’s lots of risk in the short term from where I’m sitting.
By the time those long-term upsides manifest, the robots might have already murdered us too.
Comtois: Again, the jobs robotics should be — and are — replacing are ones that humans maybe shouldn’t be doing (like economists). While robots and AI will take some jobs away from humans, they’ll also create new ones — and a lot of them, at that.
They’ll also increase productivity and maintain a consistent level of quality. Just as robots don’t need facilities or utilities to do their jobs, they also don’t need breaks, vacations, or sick days, and don’t experience burnout. With this tireless labor comes a product made with consistent quality.
Harp: Though I’m sure that the end destination of robotics is profitable (at least for some), I think others are seeing that the headwinds, though not insurmountable, are worth a pause. Here’s a chart showing the amount of venture capital seeding funding going into robotics by year:
With a potential recession in the works, even with just the specter of one, 2023 could look a lot like 2022 for robotics.
Robotics might very well be a disruptive technology in the future, but it’s hard to see how they’ll square the circle given the current political and economic landscape. Even a company like Amazon, with its massive heft and seemingly bottomless resources, recently scaled back its robotics program because of macroeconomic headwinds. Many of their robotics divisions are unprofitable, and the amount of runway needed to make them profitable is clearly daunting. If Amazon can’t get delivery robots out there in the near term, and sees the writing on the wall, I question whether this space is truly ready for its moment. Plus, other, more urgently needed disruptive tech breakthroughs are more likely to garner investment attention.
Tech broadly speaking, had a bleak 2022, with tech stocks falling more than 30%. Though January saw a rally, February saw that rally come to a screeching halt. You can’t get much techier than literal robots, and tech’s headwinds are quite potent right now.
Comtois: While fears of killer robots (and balloons) are understandable, robotics is still a field worth investing in. Robotics will help us become more efficient and productive. Yes, there are ways technology can be exploited and abused. (Stop giving robots guns, Boston Robotics!) That’s the case for literally every and any technology. To once again quote Criswell, “We once laughed at the horseless carriage, the aeroplane, the telephone, the electric light, vitamins, radio, and even television!”
Harp: When the Boston Robotics police dog guns me down in the streets because I mentioned unions in this edition of Bull vs. Bear, my last thought will be, “at least this is good for my portfolio.”
Comtois: I should point out Criswell also said: “God help us… in the future.”
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