We recently compiled a list of the $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other humanoid robot stocks.
If there’s one thing that can be said for sure, it’s that 2024 is the year of technology. Artificial intelligence, despite its biggest detractors claims, has managed to persist, and in its wake, it has spurred new life into a variety of industries.
One such industry is robotics. Like artificial intelligence, robots have typically been thought to lie in the domain of science fiction. And like AI, they’re also becoming a reality faster than we can comprehend. One of the biggest advancements in robotics has been made by the private company Boston Dynamics, whose robot dogs are used by a lot of industrial customers, including SpaceX.
However, while Boston Dynamics’ robot dogs are impressive, humanoid robots, or those that look like humans and perform mechanical functions like humans are further in the domain of science fiction. These robots are popularized through movies such as. the Terminator series and iRobot, are in fact, a multi trillion dollar opportunity if we’re to believe research from Wall Street analysts.
A research report by Morgan Stanley that takes one of the most optimistic takes on humanoid robots speculates that by 2030, the humanoid population will sit at a comfortable 40,000. If this was impressive, the estimates for 2040 and 2050 are not only stunning but also orders of magnitude higher. By 2040 and 2050, the humanoid population could sit at an unbelievable 8 million and 63 million, respectively – or higher than 27 out of the 50 most populous countries in the world in 2024. In terms of monetary figures, the wage impact of the 8 million population is estimated to sit at a cool $357 billion, while the impact of the 63 million robots is $3 trillion.
This research builds on the total addressable markets for industries that are an indispensable part of the world but suffer from low labor due to low funding and wages and dangerous, repetitive, and boring tasks. A total of 21 such industries are identified, and they are divided into three tiers. The first tier, or Tier 1, is expected to see humanoid adoption as soon as 2028. In terms of the total adoption percentage, i.e. the number of roles in these industries that could be filled by humanoid robots, the top four industries are construction and extraction, production, farming, fishing, and forestry, and building and grounds clearing maintenance.
The risky industries highlighted above have an adoption potential of 70%, 68%, 67%, and 67%, respectively. The highest potential of the monetary impact is also from the Tier 1 industries, and it’s quite low if we’re to look at the ‘near term.’ For the years 2030, 2032, 2034, 2036, and 2038, the wage impacts sit at $1 billion, $6 billion, $19 billion, $60 billion, and $158 billion, respectively for the Tier 1 industries. The impact for Tier 2 industries starts in 2040, with Tier 4 beginning its contribution in 2044. Yet, while their adoption might be in the future, the riskiest of use cases, i.e. space exploration, has already seen a humanoid robot in the form of NASA’s Robonaut occupy the International Space Station (ISS) from 2011 to 2018. NASA’s Robonaut first made its way to space in 2011, and it was upgraded to Robonaut 2 in 2014 which was brought back to Earth in 2018.
One industry that MS is quite optimistic about when it comes to humanoids is social care. It believes that social care “is arguably the world’s largest TAM by the end of the century, but one that suffers from restrictive funding creating a lack of incentivisation to recruit or re-skill 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.” Yet, the demand for these challenges could take its time to materialize. “Understanding the humanoid theme requires a multi-sector approach and a long term time horizon” cautions MS, but it wants investors to be ready to pounce on ” an extraordinary number of developments and milestones over the next 6 to 12 months” even though the “he path to commercialization at scale may take decades to fully play out.”
Talking numbers, there are a plethora of estimates floating around that wager a guess at the potential value of the humanoid robot industry. One estimate comes from no one else than the electric vehicle billionaire Elon Musk. Musk’s love of everything technology has made him who he is today, and it also means that he is often at the leading edge of leading technologies, whether they are artificial intelligence, brain implants, or humanoid robots.
His most recent comments about humanoid robots came during his car company’s annual shareholder meeting. At the event, the executive shared that by selling these robots, his company could become worth a whopping $25 trillion at an unspecified time in the future. Musk’s robot is called Optimus, and his firm also believes that while the robot’s initial bill of materials (BOM) can range between $50,000 to $60,000, these costs can be brought down to enable his company to sell $1 trillion worth of robots a year.
Musk isn’t the only one who is convinced of the potential offered by humanoid robots. Research from more Wall Street analysts estimates that the market could be worth $38 billion by 2035. Mind you, this is the Goldman analysts’ base case model which estimates unit shipments of 1.4 million. The bear case, which sees shipments cut in half to 703 million suggests a value of $19 billion by 2035, while the bull case and the blue sky scenario estimate shipments of 6.5 million and 11.6 million units, respectively. Extrapolating from a $38 billion valuation that stems from 1.4 million units, this could mean that the very best scenario for the humanoid robot market leads to a value of $315 billion. At the heart of this optimism are AI and dropping BOM costs.
According to the analysts, the BOM for making humanoid robots has dropped by a strong 40% between 2023 and 2024 to range between $30,000 to $150,000 depending on the specifications. This reduction is primarily “driven by the availability of cheaper components with a broader scope of supply chain options from the mere existence in labs previously, optimization in design and manufacturing technique (e.g. cost for T-screw dropped significantly by shifting from electric discharge machining to mechanical machining.”
Our Methodology
To make 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 the enablers are the ones that will directly benefit in terms of tangible revenues from potential growth in the humanoid industry, we selected the top 15 stocks in the first two categories.
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 a complex network of integrated circuits used in logic semiconductors.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Investors in Q1 2024: 135
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the largest contract chip manufacturer in the world. The chip manufacturing industry is one of the most capital intensive in the world, with firms like Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) investing billions of dollars each year to expand their production facilities and keep up with the pace. This means that the firm will likely maintain its dominant position in the industry for years to come except for any black swan events. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s leading edge nodes, such as its N3 and N2 nodes are at the front of the industry in terms of technology. It means that the firm will be the go to company of choice for any company that designs chips for humanoid robots. However, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s location in Taiwan remains its biggest risk as any conflict between Taiwan and China can lead to production disruptions.
ClearBridge Investments mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter. Here is what the firm said:
“However, we added to our semiconductor positioning during the quarter with the purchase of Taiwan Semiconductor (TSM). TSM, an out-of-benchmark name, is the world’s fabrication production provider of choice. The criticality and sophistication of the company’s manufacturing footprint powers all of the leading edge fabless global semiconductor companies, including Apple, Nvidia, Qualcomm, AMD and Broadcom. While AI has driven upside in data centers, PCs and handsets are at cycle lows, positioning half of the company’s business for a recovery.”
Overall TSM ranks 5th on our list of the best humanoid robot stocks to buy. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that 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 TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.