2023-04-25 06:18:07 ET
Summary
- IRBO invests in companies focused on artificial intelligence (AI) and robotics.
- AI is one of the hottest topics this year, as its possibilities continue to grow and could move more towards enhancing industrial robots in the future.
- AI’s revolutionary nature has also earned it some serious scrutiny, but my view remains bullish as I believe the appropriate regulations will still ultimately leave room for generous long-term profits.
- I rate IRBO a Buy, as I believe continuous innovation within artificial intelligence and robotics is likely to move the needle in this ETF during the coming periods.
The iShares Robotics and Artificial Intelligence Multisector ETF ( IRBO ) is likely to be a profitable option for investors in the long term. While both artificial intelligence ((AI)) and robotics gain traction in the workforce and across society in general, this fund's profits could well grow in the near future. Furthermore, these two independent industries have ample room for collaborations which could also drive up the price of this ETF. For these reasons, I rate IRBO a Buy.
Artificial Intelligence is becoming more of a household term every day. The AI market could pull in over $1.8T in revenue by 2030, growing at a rate of almost 40% between now and then. AI's growth has been exponential thus far, and could well progress with this same trend down the road. Resultantly, many investors are having a hard time assessing the right time to hop on this accelerating AI train. However, I believe it's not too late, and that AI still has ample room to grow. IRBO could therefore be an investment vehicle of choice for those looking to reap profits from AI expansion.
The robotics industry could also be one of the industries at the forefront of AI expansion, making this market one of the first to benefit from revenue growth. This industry could exceed $225B in revenue by 2030, with a CAGR of 12%. Robotics have recently caught the eye of VanEck , which led to the creation of a new ETF of theirs set to trade under the ticker IBOT. This could be a sign of momentum and newfound attention towards this industry. On this note, I believe as robots become smarter and more efficient with the help of AI, similar ETFs like IBOT could emerge in the coming periods. This could evidently fuel growth in this sector and provide previously existing funds like IRBO with positive momentum.
Strategy And Holdings Analysis
IRBO tracks the NYSE FactSet Glb RobArtiIntellige NR USD Index and employs a representative sampling technique. The designated index's approach to stock selection begins with fundamental research to first identify a broad array of companies that provide services related to AI and robotics. Contending companies are then narrowed to only include those that fit specific criteria. These criteria assess qualities like deriving a certain portion of revenue from relevant operations and having an adequately significant market share.
This ETF mostly holds companies involved in technology, but also includes holdings within the fields of communication, industrials, and consumer cyclical. Non-technology stocks account for over a third of IRBO. Furthermore, technology fields of focus include information technology, software, AI, and robotics.
The top 10 holdings in this ETF account for 14% of the total portfolio while the top 25 also comprise just 29%. This makes IRBO somewhat spared of concentration risk compared to alternatives like the Global X Robotics & Artificial Intelligence ETF ( BOTZ ). This could make this ETF more preferable in the long term, especially while volatility remains an issue with IRBO and similar funds.
Additionally, not one single stock in IRBO accounts for more than 2% of the overall fund.
Notable Metrics And Features
IRBO is an equally-weighted fund, distinguishing it from potential alternatives that might put their overall performance up to just a few companies. In addition to minimizing concentration risk, this may also provide investors with a broader exposure to the intriguing realms of robotics and AI.
This ETF also has lower expenses than several of its peers. Such peers include but are not limited to the ARK Autonomous Technology & Robotics ETF ( ARKQ ) and the ROBO Global Robotics and Automation Index ETF ( ROBO ).
IRBO is quite volatile and could test the patience of investors during the next few years. Especially with how quickly AI growth has accelerated, some investors are already beginning to question the stability of this growth. Therefore, trends like AI uncertainty and potential risks associated with AI could mix investor sentiment and cause this ETF's price to oscillate.
Despite being a cheaper alternative to ARKQ and ROBO, IRBO is also of lesser liquidity than these peers. Investing in AI and robotics might come with its own set of risks. On this note, investors might be deterred by the prospect of not being able to exchange their shares of IRBO during a moment of downturn.
IRBO Vs. BOTZ
IRBO has performed quite similarly to BOTZ during the last year. This ETF appears to have outperformed slightly during this period, only recently dipping back below BOTZ last month.
The gap between both ETF's performance has widened slightly so far this month.
This ETF has also quite persistently stayed above the 50-day moving average since last November, with only a couple momentary submergences since then.
IRBO just dipped back below the 50-Day moving average, but it's hard to see this movement invigorating as it's inconsistent with its recent price trajectory and recent macrotrends alike.
The long-term performance of IRBO versus BOTZ doesn't reflect any fundamental weaknesses within IRBO. On that note, I believe the most recent price dip indicates a somewhat attractive buying opportunity.
Recent Events and Future Possibilities
Artificial Intelligence
Social media enterprises like Snapchat have begun to hitch onto macro trends recently. Snapchat's new AI entity's strong resemblance to a human has both comforted and frightened users since its inception. Nonetheless, AI is easily one of the hottest technology trends of the year, and one that companies won't want to be left out of in the future.
While the growing momentum of AI may have created some salient investment opportunities, this same momentum has also earned AI some serious scrutiny. For example, The Pentagon recently announced greater measures to ensure that humans have complete control over AI, and that this system doesn't end up making decisions for us. Evidently, humans are just as willing to put AI in its place as they are to enjoy the many ways in which it can improve our lives. In the long-term, this could potentially hurt the profits of AI companies, as stricter regulations could inhibit operations and growth.
Robotics
Industrial robotics is an industry with some of the most opportunities for collaborations with AI. During the last couple years, warehouses have become increasingly dominated by AI-powered robots. This trend could continue as these machines often pose fewer liabilities compared to human workers. Robots are also making increasing appearances within healthcare and retail . Especially with how important worker health and safety became during the pandemic, industrial robots could have a lot to offer going forward.
Conclusion
Artificial Intelligence is likely to become increasingly profitable in the long term. Though its increasing similarity to humans may warrant some strict regulation, I don't believe such scrutiny will significantly detract from its overall potential. Furthermore, I think robots may also become a prominent aspect of the workforce. This development could be most significant in industries that demand repetition and precision, making robots an increasingly attractive alternative to human workers. Such possibilities invigorate my bullish stance on these industries, and prompt me to rate IRBO a long-term Buy.
For further details see:
IRBO: Like A Mini BOTZ, This ETF Could Benefit From Artificial Intelligence Growth