The era of artificial intelligence (AI) is here. As Microsoft CEO Satya Nadella said of AI, "The next major wave of computing is being born." And it's a massive opportunity. The worldwide AI market is forecast to expand from $142 billion in 2022 to $1.8 trillion by 2030.
Tech provider Symbotic (SYM 2.27%) is part of this next wave of computing. Artificial intelligence sits at the heart of its warehouse automation systems, orchestrating the actions of Symbotic's army of robot workers. This makes the company an attractive AI investment.
The question is whether it's a sustainable business that can deliver value to your investing portfolio over the long run. Digging into the company and its performance can give you a better sense of its potential ahead.
Symbotic's AI-powered automation
Symbotic provides an automation system capable of safely processing freight in distribution centers, such as warehouses. It does this through a sophisticated system of robots controlled by artificial intelligence.
This includes robots capable of navigating around a client's warehouse on their own, storing packages, or retrieving and preparing them for shipping. Because of the AI operating these robots, they can learn from their environment, continuously improving speed, efficiency, and accuracy. In fact, the company boasts a 99.99% accuracy rate because of the AI managing the work performed by Symbotic's machines.
Clients include Target, Albertsons, and Walmart, which also owns a stake in Symbotic. Retailers must increasingly rely on automation to keep pace with the AI-powered robots working in e-commerce giant Amazon's warehouses, which can process packages 24 hours a day.
Symbotic's systems are installed in only some of the warehouses owned by its customers, so it sees a growth opportunity in expanding its tech into additional distribution centers among existing clientele. The company is also building out capabilities to support refrigeration to target businesses that sell frozen and refrigerated foods.
Symbotic's sales
In its brief history as a public company (its initial public offering was in 2022), Symbotic has grown sales at an impressive clip.
Data by YCharts.
Revenue in its fiscal third quarter, ended June 24, reached $311.8 million, a 78% increase over the prior year's $175.6 million. This brought its fiscal 2023 revenue to $785 million through three quarters, more than a 100% increase from fiscal 2022's $349 million. Its sales growth is expected to continue. Symbotic anticipates a minimum of $290 million in revenue for its fiscal fourth quarter, up from the prior year's $244.4 million.
All of the company's revenue currently comes from the U.S. and Canada, so Symbotic has an opportunity to expand internationally. It is doing so through a joint venture called GreenBox formed with SoftBank in July. The deal is expected to add around $11 billion to Symbotic's backlog of orders, bringing the total to $23 billion. This partnership means GreenBox has a six-year obligation to order Symbotic's automation systems, with the first order expected in 2024.
To buy or not to buy Symbotic stock
Like many high-growth tech companies, which prioritize business expansion over profits, Symbotic is not profitable. Through three quarters of this fiscal year, Symbotic incurred a net loss of $162.5 million, which is nearly double last year's loss of $86 million.
It's understandable for expenditures to go up as revenue climbs, but over time you want to see the company move toward profitability. For now, its growing net loss is not too concerning -- yet. What is a potential red flag is that about 95% of its income is generated by just three customers. If it loses the business of any of these clients, that would substantially affect the company's finances.
So if you're risk averse, it's worth putting Symbotic on your watch list to see if it can acquire more customers and succeed in its GreenBox venture. Otherwise, since switching costs are high for clients, Symbotic is likely to retain its largest customers, and given its substantial expansion opportunities, buying at least a small stake in Symbotic stock makes sense for investors with a high risk tolerance.
