In this segment from Motley Fool Answers, Alison Southwick and Robert Brokamp are joined by senior Motley Fool analyst Simon Erickson to talk about the disruptive trends of artificial intelligence, robotics, and automation. Specifically, they consider which companies and sectors are the best investments right now to capitalize on the rise of the machines -- because if the T-1000 takes your job, you at least want some dividend payments and share price appreciation.
A full transcript follows the video.
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This video was recorded on June 13, 2017.
Robert Brokamp: Let's move on to our portfolio. So if people believe this is a trend, this is a way to enhance the performance of your portfolio. Maybe you're frightened now and you know that your portfolio has to get bigger so you can retire sooner. What can you do about that, Simon?
Simon Erickson: Well, I've got a list of 73 ideas, here, Bro, that we can go through on how to play this trend. Just kidding, of course. Or am I? The first is I think that consumer applications are going to be one of the big things that you're going to see robotics in. One of the original for this was iRobot (NASDAQ: IRBT). Have either of you ever had a Roomba?
Alison Southwick: No.
Erickson: The vacuum?
Brokamp: No, I used to do Zumba. Is that the same thing?
Erickson: I think that's similar, maybe. The Roomba is the best-selling vacuum in the United States this past year.
Erickson: It's completely robotic. It goes around your house. It vacuums for you. Saves you the time that you used to go around and vacuum the floors.
Brokamp: Have they gotten better?
Erickson: They have, because of spatial awareness. Because robots now can make sense of where they are and what they see more and more. So rather than just having an algorithm where it keeps running into something over and over --
Brokamp: That's what I saw, but it's been probably a few years since I've seen one.
Erickson: We had the original model, and I was just picking hair out of the Roomba the entire time. It didn't work well for me, either, but they've gotten significantly better. China and Japan -- they're growing 30% a year in both of those countries. They really love these things.
I think anything that generally saves you time of tasks you don't really want to do, there's a price point for everybody on that, whatever that number is, and when the costs start coming down for these, people will start investing more money in robotic helpers around the house.
Brokamp: Buck Hartzell, who's been on our show and works at the Fool, has a self-propelled lawn mower. He just turns it on and it goes around the lawn and cuts the lawn for him.
Erickson: The other idea I have for this is logistics and warehousing. You're seeing a lot of companies -- Amazon (NASDAQ: AMZN) is one of the leaders in this. It invests in robots to do a lot of the inventory management. They bought a company called Kiva Systems five years ago. Spent a little less than $1 billion for that acquisition, and they started using these in their fulfillment centers to pick up products and then fulfill the logistics. Ship them out to everybody that buys stuff on Amazon.
This is pretty amazing when you think about it. They're expecting each fulfillment center to save about $22 million, and when you multiply that by 110 different fulfillment centers, that's $2 billion a year for Amazon. That's about 7% of their total overhead costs just from applying robots. They're one of the early leaders. You're going to see other people following in their path for that one as well.
And then the other one that we talked a lot about over in Explorer is just the disruption of the transportation industry right now.
The average fare that I saw per mile for a taxi across the United States is about $2.50, and the majority of that is actually going to the labor cost ... to pay the driver for spending the time to drive you around. A self-driving car is estimated to get that cost per mile down to about a quarter. Maybe $0.30 a mile. And when you think about that, if you're taking a 10-mile trip, that's maybe $3.00. That's something Google will subsidize to have your attention for a short amount of time, just like an advertising placement would be today. So it's opening up new business ideas.
Brokamp: Wow. As a father of a 16-year-old who's learning to drive now, I wish this was already going on, because the thought of my kid being out on the road terrifies me.
Southwick: It's kind of crazy how companies like Uber and other ride-share companies -- the future is people you don't know driving you around in your cars. But companies like Uber are already investing in self-driving technology. They're already trying to put their workforce out of work. Which is kind of crazy. It's like, yes, they already recognize that we rely on people to drive you around, but it's not always going to be like that.
Erickson: And there is some societal good for that, too, right? I mean, if we can reduce the number of accidents, have self-driving cars that don't drive frantically and crazily all over the roads, maybe that's a win for everybody, too. In addition, a lot of companies will make a lot of money off it.
Southwick: I feel like people have been talking about self-driving cars, and flying cars, and other advancements in cars since the first car was made.
Brokamp: It's The Jetsons.
Southwick: Why now are we seeing, why now do we feel that self-driving cars -- what happened? What was the technological leap forward that's like, "No. this is imminent"? That this is not science fiction anymore?
Erickson: Yeah, sure. First of all, go back and watch The Jetsons again. A lot of that stuff is actually coming true now, and I think they were really ahead of their time. To answer your question, really it's just the better machine vision, which can now make sense of everything that is around it. And deep learning is really the keyword of what's going on here.
Before, machines couldn't really understand what they were seeing around them. Now we're at a point where self-driving cars, through different inputs, can make sense of seeing, "This is a stop sign. This is a kid walking in front of me." And the algorithms, the stuff behind the scenes, can process, "What am I supposed to do?" We actually rode in one of Google's self-driving cars last month out in Mountain View.
Southwick: Was it terrifying?
Erickson: It was completely normal.
Southwick: No, you were terrified. The moment he pushed the button and said --
Brokamp: So you got in the car and then it drove you somewhere?
Erickson: True story. Honest to God, we were out in a self-driving car and there was an accident on the road between two non-self-driving cars.
Brokamp: Well, there's no question that people are horrible. Let's make that clear.
Southwick: That's not up for debate.
Erickson: There was a gentleman in a truck that was stepping out of his vehicle. He might have had a fist as he was walking toward the other car. The self-driving car recognized that was out of the ordinary of what its algorithms were telling it. It slowed down, approached with caution, and then when it realized it was safe, continued to go ahead.
Brokamp: If two self-driving cars hit each other, do they get in a fight? Because that would be kind of cool. They turn into Transformers...
Erickson: And they argue in code.
Brokamp: So you weren't scared at all.
Erickson: At first when I got in I was like, "How is this going to go?" I had no idea what to expect. There was literally a gentleman holding a laptop that was the brains of the car on the passenger side of the front seat. And within two minutes I was completely comfortable. And the residents of Mountain View are kind of used to seeing the self-driving car drive all the time. It wasn't a big deal for them, either.
So again, that's an application that you're going to start seeing. I think it's going to come in pockets and roll out a little bit at a time, but that's a lot of savings for motorists everywhere.
Southwick: Who's going to win the self-driving-car race, because everyone's got one?
Brokamp: Even the traditional car manufacturers --
Southwick: Everyone who's got money to throw at the problem has one.
Erickson: Yes, it's a good question, really. I mean, you kind of see Detroit's trying to sell cars. They're trying to sell the torque and the engine size to people that want to drive it.
Southwick: It's called the ... oh! I thought the name of the car was the Torque. I was like, "Ugh. We need to have a word with their branding in front of it. I don't want to buy a Torque."
Brokamp: It's the same as The Monkees. There's the Nesmith, the Jones.
Erickson: But they're selling the car that we step on the accelerator. You're going, like a sports car. And then Silicon Valley is trying to completely replace the driver altogether to minimize accidents. So there's going to be somewhere of a middle ground between those two.
Southwick: But TBD, who's winning?
Erickson: There's going to be a lot of companies that run the platform that make sense of what's going on. I think NVIDIA is definitely one of my front-runners right now for that, just because they have the graphics processing units that really are the brains that are telling the car what to do.
Alison Southwick has no position in any stocks mentioned. Robert Brokamp, CFP has no position in any stocks mentioned. Simon Erickson owns shares of Amazon and Nvidia. The Motley Fool owns shares of and recommends Amazon, iRobot, and Nvidia. The Motley Fool has a disclosure policy.