In last Friday’s post, I wrote briefly on “AI Diffusion,” the idea that what matters most in the development of the AI economy is less about latest “models” and more about the way AI will be diffused into the real economy—how AI technology impacts public and private spheres (i.e., beyond the growing hype around recent AI narratives.) In short, I am bullish on the AI diffusion as the key driver to economic gains, attributed to AI technologies, in the coming few years.
It is nearly impossible to ignore AI-in-the-real-world stories which fill up our news feeds. From finance and banking, to manufacturing, logistics, healthcare—the list of applications continues to grow at an astonishing rate. And those stories are setting up what appears to be exponential economic benefit.
The Opportunity
The Atlanta Fed forecasts corporate productivity gains from the implementation of AI tools to at least double in 2026. The story, beginning this year and running into 2027, has shifted from AI models to one of AI driving tangible Return on Investment (ROI) for companies globally.
One key component of tangible productivity is AI Robotics. In particular, Morgan Stanley’s coverage of robotics is both extensive and substantially bullish on the sector. Their research outlines some of the key forecasts and developments in the space, worth every investor’s attention:
$25 trillion in annual AI-robotics product revenue by 2050
Greater than $50 trillion of recurring service revenue
Humanoid installations of up to 1 billion by 2050
Compute capacity associated with robotics increasing 40,000x
Demand for robotic components and materials increasing exponentially (e.g., robot batteries increasing 1,500x)
The market for robotics is broad but realistic and actionable: Healthcare / Safety (remove human element for more dangerous jobs) / Manufacturing / Logistics / Transportation / Space, etc.. Yet, much of the attention is paid to humanoids. But humanoids are only one of thousands of form factors: autonomous vehicles, low altitude robots, mobile robots, industrial and military applications, etc.
The use-case for AI robotics versus traditional robotics (e.g., current automotive manufacturing applications) is one where robots acquire something resembling a genera-purpose intelligence layer, unlike their counterparts which were programmed for repetitive tasks and operated within a controlled environment. The AI robotic frontier will include a generation of machines capable of perception, reasoning, action, learning and adapting in less controlled environments.
Furthermore, investors should consider the extended ecosphere of AI robotics and not merely the robot manufacturers themselves. Wisely, Morgan Stanley breaks the robot into parts that help us to better understand the investment opportunities beyond the finished product. The robotic supply chain involves products for robotic brain, body and integration.
Brain: semiconductors, inference compute, control systems, sensors
Body: motors, actuators, bearings, batteries, connectors, rare-earth magnets
Integration: companies assembling components into useful machines
Companies to watch include well known names, such as, Nvidia, Meta, Tesla and Alphabet, as well as lesser known names, including, Teradyne, Symbotic, Mobileye, Regal Rexnord, Aptiv, NSK, Timken, Hexagon, to name but a few.
The Risks
There are of course risks facing the growth of AI robotics. Robotics places China in focus. China is leading in AI robotics primarily due to its manufacturing prowess and supply chain eco-systems. There is no credible way to wall off China from the US physical AI eco-system. However, this is also an opportunity for companies in Europe and the US to forge new partnerships in the expansion of the AI robotic ecosphere (especially supply chains). Pay closer attention to those companies that are developing such relationships as they stand to prosper more quickly.
Physical AI is more likely to be heavily regulated. Super advanced technology contains a military element, one reason physical AI is bound to be in the sites of regulators. There is a sense of urgency around regulation of AI. It will impact the form and cadence of robotic development, but not the ultimate impact. Physical AI will have x8-x10 impact on global GDP over the coming decades, regardless of regulation. The threat by regulatory agencies is one of pace—do they slow progress or not?
Finally, while AI robotics is expected to deliver enormous productivity gains and abundant production, it could simultaneously displace labor forces, generate political upheaval and social instability. The question remains whether technological enlightenment and social turmoil can coexist.
Mind The Gap
In 2025 a total of 7,000 humanoid robots were sold globally. The gap between 7,000 in 2025 and a projected 1 billion by 2050 is enormous! However, that is precisely where the investment opportunity and risk lies. The investor who looks at the obvious is likely to decide “let’s wait and see.” But pause and think about the economic impact of electricity over 25 years. Enormous. What about the internet over 25 years? Massive. how many of us wish we had gotten in earlier during the early days of the internet?
It may seem that the AI robotics landscape is “pie in the sky” wishful thinking. Perhaps it is. Unless we use another lens. Ignore the robotics forecast. Instead, consider the forecast of a declining marginal cost of physical labor. As robots become economically useful (i.e., cheaper to produce) mass deployment is inevitable. It would be irrational for company executives to ignore them. That would result in human labor becoming increasingly “substitutable.”
If, as Morgan Stanley projects, the operating cost of a humanoid reaches $5/hour by 2040, the economic incentive becomes inescapable. For now, costs remain a major obstacle, which means we should not expect robots on every corner. Expect the transition to be phased over time.
For smart investors, there is a very strong case for considering AI robotics.
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