We recently published a list of $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley. In this article, we take a look at how Synopsys, Inc. (NASDAQ:SNPS) compares to other humanoid robot stocks.
If there is one thing that can be said with certainty, it is that 2024 is the year of technology. Artificial intelligence, despite the claims of its biggest critics, has managed to prevail and breathe new life into numerous industries in its wake.
One such industry is robotics. Like artificial intelligence, robots have been considered science fiction until now. And like AI, they are becoming reality faster than we can comprehend. One of the biggest advances in robotics has been made by the private company Boston Dynamics, whose robot dogs are used by many industrial customers, including SpaceX.
While Boston Dynamics’ robot dogs are impressive, humanoid robots, those that look like humans and perform mechanical functions like humans, are more science fiction. Popularized by movies like the Terminator franchise and iRobot, these robots are actually a multi-trillion dollar opportunity if we believe research from Wall Street analysts.
A Morgan Stanley research report, which makes one of the most optimistic assessments of humanoid robots, speculates that the humanoid population will be a comfortable 40,000 by 2030. If that was impressive, the estimates for 2040 and 2050 are not only staggering, but orders of magnitude higher. By 2040 and 2050, the humanoid population could be a staggering 8 million and 63 million, respectively—or more than 27 of the world’s 50 most populous countries in 2024. In monetary terms, the wage effect of the 8 million humans is estimated at a whopping $357 billion, while the effect of the 63 million robots is $3 trillion.
This research is based on the total addressable markets for industries that are an indispensable part of the world but suffer from labor shortages due to low funding and wages, and dangerous, repetitive, and boring tasks. A total of 21 such industries were identified and divided into three tiers. In the first tier, or Tier 1, humanoid robots are expected to be adopted as early as 2028. In terms of total adoption percentage, that is, the number of roles in these industries that could be taken over by humanoid robots, the top four industries are construction and mining, manufacturing, agriculture, fishing, and forestry, and building and grounds maintenance.
The high-risk industries highlighted above have a takeover potential of 70%, 68%, 67% and 67% respectively. The highest potential for financial impact also comes from Tier 1 industries and it is quite low if we look at the “short term” perspective. For the years 2030, 2032, 2034, 2036 and 2038, the wage impact is $1 billion, $6 billion, $19 billion, $60 billion and $158 billion respectively for Tier 1 industries. The impact on Tier 2 industries starts in 2040 and Tier 4 industries start contributing from 2044. Although their introduction may still be in the future, in the riskiest use case, namely space exploration, a humanoid robot in the form of NASA’s Robonaut has already occupied the International Space Station (ISS) from 2011 to 2018. NASA’s Robonaut first flew into space in 2011, was upgraded to Robonaut 2 in 2014 and returned to Earth in 2018.
One industry where MS is quite bullish on humanoids is social care. MS believes that social care “will arguably be the largest TAM in the world by the end of the century, but suffers from restrictive funding that creates a lack of incentives to hire or retrain workers. Humanoids will face many challenges. And while they may not be the best solution, they are an increasingly necessary solution for a world facing immense longevity challenges.” However, it may take some time for demand to take shape. “Understanding the humanoid theme requires a cross-sector approach and a long-term time horizon,” MS warns, but wants investors to be ready to jump on “an extraordinary number of developments and milestones in the next 6-12 months,” even if the “path to large-scale commercialization may take decades to fully tap into.”
As for numbers, there are a plethora of estimates estimating the potential value of the humanoid robotics industry. One estimate comes from none other than electric car billionaire Elon Musk. Musk’s love of all things technology has made him what he is today, and it also means he’s often at the forefront of leading technologies, whether it’s artificial intelligence, brain implants, or humanoid robots.
He made his latest comments on humanoid robots during his automaker’s annual shareholder meeting. At the event, the executive shared that his company could become worth a whopping $25 trillion by selling these robots at some unspecified point in the future. Musk’s robot is called Optimus and his company also believes that while the robot’s initial material cost may be between $50,000 and $60,000, that cost can be reduced to allow his company to sell $1 trillion worth of robots per year.
Musk is not alone in being convinced of the potential of humanoid robots. Research from other Wall Street analysts estimates that the market could be worth $38 billion by 2035. This is the Goldman analysts’ baseline model, which assumes 1.4 million units shipped. The Bear scenario, in which shipments fall by half to 703 million, suggests a value of $19 billion by 2035, while the Bull and Blue Sky scenarios predict shipments of 6.5 million and 11.6 million units, respectively. Extrapolating from a $38 billion valuation based on 1.4 million units, the best-case scenario for the humanoid robot market could result in a value of $315 billion. At the heart of this optimism are AI and falling bill of materials costs.
According to the analysts, the bill of materials for manufacturing humanoid robots has dropped by a whopping 40% between 2023 and 2024, ranging from $30,000 to $150,000 depending on the specification. This reduction is primarily due to “the availability of cheaper components with a wider range of supply chain options that were previously only available in labs, as well as optimizations in design and manufacturing technology (e.g., the cost of T-bolts has dropped significantly by switching from electrical discharge machining to machining).”
Our methodology
To create our list of the best humanoid robot stocks to buy, we started with Morgan Stanley’s Humanoid 66 stock list. This list is divided into three categories: humanoid enablers and beneficiaries, enablers and beneficiaries. Since enablers are those who will directly benefit from the potential growth in the humanoid industry in the form of tangible revenue, we chose the 15 best stocks in the first two categories.
Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
A close-up of a technical engineer soldering a modern system-on-chip board in a laboratory environment.
Synopsys, Inc. (NASDAQ:SNPS)
Number of hedge fund investors in Q1 2024: 64
Synopsys, Inc. (NASDAQ:SNPS) is a backend semiconductor company that provides software and other tools that chipmakers can use to develop and optimize their products. It is one of a few companies of its kind in the semiconductor test equipment industry that is located in a cluster primarily confined to the U.S. and Japan. This means that Synopsys, Inc. (NASDAQ:SNPS) benefits from competitive advantages and high barriers to entry, meaning that as global demand for semiconductors increases, the company can benefit from the increasing demand while remaining somewhat protected from competitive pressures. At the same time, since the chip industry is one of the most sensitive in the world, Synopsys, Inc. (NASDAQ:SNPS) is always at risk of government restrictions that prevent it from selling products to countries like China.
TimesSquare Capital Management mentioned Synopsys, Inc. (NASDAQ:SNPS) in its Q1 2024 investor letter. Here is what the company said:
“We reduced Synopsys, Inc. as its market capitalization grew and it approached our price target. This quarter, Synopsys confirmed its plans to acquire ANSYS, Inc. While the deal offers long-term strategic benefits, we believe it will be a drag on Synopsys’ overall growth in the short term, significantly reduce its balance sheet and create more volatility in the shares. For this reason, we sold our position.”
Total SNPS ranks 15th on our list of the best humanoid robot stocks to buy. You can visit $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley to see the other humanoid robot stocks that are on hedge funds’ radar. While we recognize SNPS’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than SNPS but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion ‘opportunity’ for NVIDIA and the 10 best stocks to buy in Q3 2024, according to Bank of America.
Disclosure: None. This article was originally published on Insider Monkey.
