Ark Investment Management -- led by top technology investor Cathie Wood -- runs eight exchange-traded funds (ETFs) centered around tech and innovation. The firm deploys investors' money into publicly listed companies developing everything from electric vehicles to artificial intelligence.
Ark just released its "Big Ideas 2023" report, which details 14 industries of the future that investors should be watching. It makes a series of blockbuster financial predictions for those sectors, and there's one in particular that might be flying under investors' radars: robotics.
It's an under-appreciated fact that e-commerce giant Amazon (AMZN 2.29%) is a global leader in the robotics space. With that in mind, let's explore the stock's potential to benefit from this wave of growth.
Robotics will create unprecedented efficiency
Ark is incredibly bullish on the robotics sector. The firm has identified an interesting trend, suggesting that businesses invest more money in automation during times of economic uncertainty, much like the one we're experiencing today.
There was an acceleration in the adoption of robotics after the dot-com tech bust in 2002, the global financial crisis in 2008, and since the 2020 COVID-19 pandemic that disrupted supply chains. Employees are typically a company's largest expense, so supplementing the workforce with autonomous robots can be a major cost saver in difficult economic times.
They're capable of working around the clock, they don't require benefits or days off, and they're relatively cheap to replace -- in other words, they're major drivers of efficiency.
Adoption is likely to continue to accelerate because the latest robotics technology have been enhanced with the power of deep learning. For example, in a factory setting, a modern fulfillment robot can pick and pack 1,000 items per hour, up from just 30 in 2015. For perspective, humans can pack around 400 items per hour, so today's robots are already 2.5 times more efficient than regular workers in fulfillment centers.
Ark suggests the financial opportunity in this industry could reach $9 trillion by 2030. That would represent growth of nearly 13,000% from its $70 billion value in 2022!
Image source: Getty Images.
Efficiency is key to Amazon's e-commerce success
Amazon has grown to become the globally dominant force in e-commerce, completing $220 billion in online sales during 2022. The company has adopted a relatively simple strategy -- it keeps prices lower than its competitors so it can sell products in high volumes.
But that's a delicate dance because it leads to razor-thin profit margins, and sometimes Amazon finds itself losing money in its e-commerce segment. But rather than dramatically raising prices, the company focuses on ways it can operate more efficiently to save on costs. Its Boston-based Amazon Robotics unit is a major piece of that strategy.
Amazon spent $84 billion on fulfillment costs in 2022, which includes staffing and operating its fulfillment centers, a number that has tripled since 2017. But interestingly, the growth in fulfillment costs has slowed more recently despite the company's aggressive investment in other areas like sales and marketing, technology and content, and administrative costs.
Could a growing reliance on robots be the cause? Employees are a big part of Amazon's overall cost structure -- it had 1.6 million workers across the business at the end of 2022, up from just 341,000 in 2017.
But in 2022, the number of Amazon robots working alongside employees topped an all-time high of 520,000. That was up 48% compared to 2021, which was twice the pace it was adding new human workers. And in fact, Amazon has announced plans to lay off 27,000 staff across all of its business units this year already.
Amazon Robotics faces a substantial opportunity
Amazon Robotics turned 10 years old in 2022, and in that milestone year it unveiled Proteus, the world's first fully autonomous fulfillment robot. It's designed with unrestricted movement in mind so it can safely whiz around fulfillment centers right alongside humans, and it's capable of heavy lifting so employees can focus on more complex tasks.
Amazon's in-house robotics success has pushed other companies to seek the services of start-up robotics companies in an attempt to keep up. Ark Invest says the U.S. manufacturing industry, for example, would have to add 4 million robots to operate at the same employee-to-robot ratio as Amazon does now, which is part of the equation for the firm's massive value prediction for the industry. That sure sounds like a big opportunity.
But even if Amazon keeps this product in-house and doesn't sell it to third parties, it could create tremendous value for the company in the long term through increased efficiency and cost savings alone.
Amazon is about more than just e-commerce and robotics
Amazon generated $514 billion in total revenue last year, which means e-commerce was only responsible for 42% of the money in the door. The rest came from a mix of other businesses like streaming, digital advertising, and most importantly cloud services.
Amazon Web Services (AWS) is the world's leading cloud platform, helping businesses store data online, build software, and even develop artificial intelligence and machine learning tools. It's playing in an industry that could be worth $1.5 trillion by 2030, according to Grand View Research, so it has plenty of scope to grow its $80 billion in 2022 revenue over the long term.
Amazon's advertising segment is another to watch closely. While it generated just $37 billion in revenue last year, that was up from $19 billion just two years ago. Amazon.com is a great place for merchants to market their products because the site attracts 2.4 billion visits each month. But with the company's growing portfolio of media assets, including live sports rights spanning European soccer and the NFL, Amazon could become a digital advertising powerhouse over time.
Whether Amazon begins producing robots for the mass market or not, it has no shortage of growth drivers going forward. With its stock down 45% from its all-time high amid the broader tech sell-off, there's no time like the present to start buying the stock.
