Artificial intelligence (AI) is taking the world by storm. The myriad applications the technology presents seem to evolve by the day. At the forefront of the AI revolution is semiconductor manufacturer Nvidia (NVDA +1.73%).
Nvidia is best known for its graphics processing units (GPUs) -- specialized chips used in accelerated computing and generative AI applications, such as machine learning and natural language processing.
Nvidia's products have been in high demand over the last year as AI became a more prominent fixture in IT budgets. For the 12 months ended Jan. 28, Nvidia generated $27 billion in free cash flow -- a more than sevenfold increase compared to the prior year.
The company is aggressively deploying its capital, and a new investment in robotics start-up Figure AI is Nvidia's latest move in its calculated chess game to outmaneuver the competition. Let's break down what Figure AI does and why Nvidia may be so keen to get involved in the emerging robotics market.
NASDAQ: NVDA
Key Data Points
What is Figure AI?
Figure AI is a start-up that is developing humanoid robots. The company believes robotics will play a crucial role in automating everyday life. For example, robotics has the potential not only to disrupt the labor market but also to assist people in their homes with mundane tasks.
Last week, reports broke that Figure AI raised $675 million in venture capital (VC) funding at a $2.6 billion valuation. If achieving unicorn status wasn't impressive enough, the company's backers are equally impressive. Participants in the fundraising included Microsoft, Jeff Bezos, Cathie Wood's Ark Invest, OpenAI, and Nvidia.
Jeff Bezos, Nvidia, OpenAI, Microsoft, & Amazon are backing 'Figure AI', a start-up developing human-like robots, is raising $675M, valuing the company at ~$2B
-- Wall St Engine (@wallstengine) February 23, 2024
Bezos contributes $100M, Microsoft $95M, with Nvidia and Amazon each investing $50M. @elonmuskpic.twitter.com/udATNvaQvS
38 billion reasons to pay attention
I'll concede that the idea of humanoid robots sits somewhere between The Jetsons and a sci-fi horror movie. But all jokes aside, Wall Street sees massive potential for this pocket of the AI market.
Goldman Sachs estimates that the total addressable market for humanoid robots could be $38 billion by 2035. To put this into context, just a year ago, the bank estimated that the market size was $6 billion. Goldman cited faster-than-anticipated progress in large language models (LLM) and accelerated investments in AI as reasoning for the more bullish forecast.
But Goldman isn't the only one that sees multibillion-dollar potential here. On Figure AI's website, the company outlines that robots could disrupt the labor force in a meaningful way -- from industries including manufacturing, logistics, warehousing, and retail. As robots help mitigate labor shortages, it could result in an enormous paradigm shift in the workforce by lowering the cost of goods and services.
Why might Nvidia be interested in robotics?
I see a few reasons Nvidia may be interested in partnering with Figure AI. First, Nvidia's chips and its under-the-radar software business could play a crucial role in the further development of Figure AI bots.
But a more subtle reason for Nvidia's participation in the fundraise could be to simply acquire some exposure to an already established market. Humanoid robots are being developed by a host of companies -- you might just not realize it.
Most prominently, Tesla has been teasing investors with a robot called Optimus, which it plans to use across its gigafactories and sell to consumers and businesses more broadly in the long term. And right behind Tesla is Boston Dynamics, the developer of the canine robot BigDog and humanoid bot Atlas.
Lastly, while Amazon and Alibaba currently leverage less-humanlike robots for their warehouses, the broader idea is that this technology has led to incredible efficiencies as it relates to shipping and labor costs. As investment in AI continues to build momentum, I would not be surprised to see companies in all different industries worldwide begin to integrate humanoid robotics into everyday operations.
The investment in Figure AI comes at the heels of another investment by Nvidia, this one in voice-recognition software developer SoundHound AI. While news of these deals is not a reason alone to buy Nvidia stock, it is fun to speculate what they could represent in the long run.
Image source: Getty Images.
I see the investment in Nvidia as an important move for the company as it seeks to move beyond GPUs. While its chip business will likely remain the bread and butter for the next few years, eventually, the competitive landscape will heat up, and Nvidia will need to demonstrate that it has other products and services it can market.
I am excited to see where Nvidia can go in the long run, given the potential of humanoid robotics, the many different industries it could disrupt globally, and the company's potential to act as one of the primary engines powering this new technology.
