It’s difficult to find a sector where artificial intelligence and robots will not see increased applications in the coming years. Agriculture, retail, shopping, manufacturing and gaming, are just some examples. One thing that touches each one of them is their viability as robotics stocks plays.
It’s not surprising therefore that the AI and robotics market are expected to grow at a CAGR of 28% through fiscal 2026, and it’s likely strong growth will sustain beyond this period.
Even if companies in the AI and robotics industry follow the industry growth rate, the outlook for these companies is bright, so it makes sense to consider some exposure to robotics stocks.
Let’s talk about three robotics stocks that stand to benefit from positive industry tailwinds.
- iRobot Corporation (NASDAQ:IRBT)
- Revolution Acceleration Acquisition (NASDAQ:RAAC)
- Nuance Communications (NASDAQ:NUAN)
Robotics Stocks: iRobot Corporation (IRBT)
IRBT stock is possibly the top name to consider among robotics stocks. The stock has witnessed a strong rally adding nearly 150% in the last year. With short interest at 20% of free float, I would be cautious at current levels. However, the stock is worth accumulating on corrections.
As an overview, iRobot is a consumer robot company with a primary focus on the home robot cleaning category. For fiscal 2020, the company reported revenue growth of 18% on a year-over-year basis to $1.4 billion. For this year, the company has guided for 14% to 17% revenue growth.
The company believes that mid to high top-line growth is sustainable in FY2022 and beyond. This seems very likely considering the point that the company is looking at product diversification. Geographical diversification is another factor that’s likely to keep revenue growth robust.
Focus on innovation sets the iRobot apart from its peers. The company has more than 200 patents in robot artificial intelligence and home understanding. Overall, iRobot is positioned for steady growth in the coming years. A potential correction would be a good opportunity to accumulate IRBT stock.
Revolution Acceleration Acquisition (RAAC)
RAAC stock would be among my top picks among special purpose acquisition companies (SPACs) that are robotics stocks plays.
Recently, Revolution Acceleration announced a business combination agreement with Berkshire Grey. The latter is a “pure-play robotics company offering fully integrated, artificial intelligence-based software and hardware solutions.”
As a matter of fact, the company’s Founder and CEO, Tom Wagner, previously served as a chief technology officer at iRobot. Berkshire Grey is focused on e-commerce, package handling and grocery companies. The company provides comprehensive and coordinated AI-enabled robotics to end clients in these industries. In particular, for warehouse operations.
Berkshire Grey estimates that only 5% of warehouses are currently automated. This presents a big opportunity for growth in the coming years. For the year, the company expects revenue of $59 million. Further, top-line is guided at $927 million for FY2025. The company is therefore positioned for strong growth in the next few years.
On the flip-side, Berkshire Grey expects to be adjusted EBITDA positive only in FY2024. However, it’s worth noting that EBITDA margin is guided at 25% for FY2025. Once top-line growth accelerates significantly, the business can deliver healthy cash flows.
Once the business combination is closed, Berkshire Grey will have net cash of $507 million. With ample financial flexibility, the company seems well-positioned to accelerate growth.
Robotics Stocks: Nuance Communications (NUAN)
NUAN stock has been in a steady uptrend and currently trades at a forward price-to-earnings ratio of 60.
However, Wedbush analyst Daniel Ives believes that the stock has a price target of $65. This would imply about a 45% upside from current levels (around $45).
As an overview, Nuance Communication is in the business of conversational AI focused on healthcare. The company’s key product is Nuance Dragon Ambient Experience (DAX), which they claim addresses a key challenge of clinical documentation in the healthcare industry. That is, it takes detailed notes during the visit to which the physician can refer later.
The company had expansion plans beyond the U.S. to 14 other countries. This could be a potential game-changer in terms of top-line growth.
It’s worth noting that the company has continued to report negative top-line growth on a year-on-year basis. However, the stock has trended higher.
The reason is the possible growth outlook in the next few years with a market-disrupting AI technology.
Another reason for the stock remaining firm is the company’s recurring revenue model. For the current year, the company expects ARR in the range of $510 to $540 million.
By FY2023, recurring revenue is expected at $955 million (mid-range of guidance). Clearly, as ARR accelerates, the company is well-positioned to generate robust cash flows.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock-specific articles with a focus on the technology, energy and commodities sector.