Over the course of the last century, the makeup of modern day society and the world as we know it has significantly changed. Humans living in the first quarter of the 20th century were just starting to get used to automobiles and long distance air travel was still a distant dream for most people.
Now, with the age of artificial intelligence seemingly upon us, the world has changed. AI, a technology exclusive to science fiction in just the past decade, is now a reality even though its highest firm, i.e. artificial general intelligence, is far from being a reality. Similarly, while factories in the 20th century had to rely on workers for most of their production, now, automation is in full swing.
No where is the impact of this clearer than in the factories of Elon Musk's car company. The electric vehicle billionaire has often described his attempts at establishing a viable production base for electric vehicles as "hell," and now, he believes that the future of the world lies in the hands of humanoid robots. So much so that Musk believes that by selling $1 trillion of humanoid robots annually, his company can reach an unbelievable market value of $25 trillion. Right now, it's valued at $708.7 billion after having lost 8.96% year to date, and the combined value of the S&P 500 is $45.7 trillion.
Musk aims to have the first version of his firm's Optimus humanoid robot in small scale production early next year and start selling the humanoid robot to other companies in 2026. A simple humanoid isn't what one of the world's richest men is talking about though, since the key to his plan of selling robots is autonomy. This is the key valuation driver, believes Musk, as he shared during the Q2 2024 earnings call:
And it takes the valuation, I think, to some pretty crazy number. ARK Invest thinks, on the order of $5 trillion, I think they are probably not wrong. And long-term Optimus, I think, it achieves a valuation several times that number.
Ark Invest, Cathie Wood's hedge fund which filed $11.2 billion of investments with the SEC for Q2 2024, is also quite bullish on humanoid robots. Calling humanoid robots as generalizable robots, Wood's firm believes that they represent a $24 trillion revenue opportunity. This opportunity is split even between household and manufacturing robots, with the investment firm outlining that even a 50% take rate coupled with a 50% productivity boost could lead to a $7.1 trillion revenue opportunity for humanoid robots. Looking ahead, Ark Invest believes that humanoid robots will "have grown to 10% of the number of humans in the manufacturing workforce" by 2030 - in an era where cheap "robots in human form-factors have begun to populate households" to "address a third of household chores" and be an attractive purchase because of the time that they help people save.
Cathie Wood and Elon Musk aren't the only ones who are convinced about the potential that humanoid robots offer. Another big believer is the investment bank, Morgan Stanley. It believes that the biggest potential of humanoid robots is the cost savings that they can offer. As per analyst Adam Jonas' estimates, these robots can "bring about cost savings of roughly $500,000 to $1 million per human worker over 20 years." These savings will come at a hairline of a fraction of the cost, with the bank's estimates sharing that they could cost anywhere between $10,000 to $30,000 to manufacture.
The investment bank's estimates also believe that by 2030, America could have as many as 40,000 humanoid robots helping humans. Talking about overall usage, the industrial and other uses of humanoids could lead to a wage impact of $1 billion. These wage impacts grow as we move further down the future, and peak in 2050 when the bank believes that the humanoid population will be at an unbelievable 68 million for a wage impact of a whopping $3 trillion. Of course, the robots that the bank has envisioned aren't your everyday run of the mill equipment.
These will use artificial intelligence, which naturally expands the investment options for investors looking to profit from this potential growth. As per analyst Ed Stanley, the list of potential contenders for investment as humanoid robot stocks includes "companies making the generative AI that will power the robots’ brains, the mechanics that make their bodies run, and the battery storage needed to power them. Further development in those three areas will be key to achieving humanoid commercialization.."
If you thought that we were done with trillion dollar estimates for the humanoid robot industry, you'd be wrong. Another such estimate comes from the management consulting firm Roland Berger. It believes that if the sector scales according to optimistic projections, then by 2050, 50 million humanoid robots could generate $1.5 trillion in revenue. However, the firm does caution that this optimism is contingent on "heavily dependent on technological progress and the regulatory environment" as regulatory scrutiny of humanoids is benign right now as the majority of them are currently prototypes.
Our Methodology
We used Morgan Stanley’s Humanoid 66 stock list. for our list of the biggest beneficiaries of the humanoid robot race. This list is divided into three categories, humanoid enablers and beneficiaries, enablers, and beneficiaries. From these three, we selected the top stocks from the beneficiaries list. If you're interested in the other two categories, be sure to check out $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of an oil rig showing the precision engineering required to extract oil and gas.
Tenaris S.A. (NYSE:TS) is a Luxembourg based specialty steel company that sells heavy duty products such as steel pipes and casings to the oil drilling industry. It also sells pipes used in car manufacturing and other industries. The nature of its products and manufacturing operations means that Tenaris S.A. (NYSE:TS) is particularly suited to benefit from humanoids due to the robots' weight lifting strengths and no susceptibility to injury when compared to humans. On the business front, Tenaris S.A. (NYSE:TS)'s exclusive focus on the oil industry means that its fortunes are also tied to the health of the sector. Additionally, any competition from cheap steel products can hurt its market share, and for investors, the key way to gain visibility into Tenaris S.A. (NYSE:TS)'s business is to check its backlogs. Its industrial products necessitate long lead times, and the resulting backlogs mean that the firm benefits from cash flow visibility.
Tenaris S.A. (NYSE:TS) also benefits from long term contracts. On this front, here's what management shared during the Q2 2024 earnings call:
"This quarter we renewed our long-term contract for Shell operation in the Gulf of Mexico, and have been selected by ExxonMobil for their upcoming operation in Angola. We were also awarded the supply of casing and offshore line pipe and coatings by Woodside for Trion project in May. In the second half, we will begin deliveries of coated line pipe for Equinor Orion [ph] project in Brazil and we have an extensive backlog of order for offshore projects going into 2025. Today however, as we look towards the second half we see that our sale will be lower than the sale in the first semester, affected mainly by three factors in the United States a record level of oil and gas production are being sustained even if drilling activity decreased, reduced overall demand for pipes."
Overall TS ranks 12th on our list of the best humanoid robot stocks to buy. While we acknowledge the potential of TS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
