Looking at AI and beyond

Be prepared to work alongside a robot in the future—and to possibly hear the names of these companies much more often.

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The artificial intelligence (AI) market could reach more than $190 billion by 2025 and grow more than 30% a year, according to Deloitte Insights—and it’s just one part of a broader disruptive trend in process automation that includes “co-bots” working alongside humans.

“Adoption of next-generation automation remains low and the use of collaborative robots, or co-bots, that can work safely alongside humans could increase dramatically in the coming years, partly due to the rising middle class in China and Southeast Asia that is diminishing the benefits of global wage arbitrage,” notes Charlie Hebard, co-manager of Fidelity® Disruptive Automation Fund (FBOTX).

The fund’s management team invests at least 80% of assets in securities of disruptive automation companies, including industry leaders in robotics, automation, sensors, machine vision, and AI. This often includes designers of semiconductors, computing solutions, imaging-based inspection systems, industrial machinery, as well as electrical components and equipment.

Automation isn’t all about cost savings, according to Hebard. He contends many leadership teams realize that using smart machines in the manufacturing process can be far faster than humans alone, while helping to reduce error rates and improve worker safety.

Hebard believes adoption of these disruptive technologies could drastically change the way many types of consumer goods are produced in the coming decades, including cars, household products, medical devices, and packaged foods.

As a result, the fund has favored companies such as Fanuc (FANUF), a leading Japanese supplier of industrial robots, and Siemens, a diversified German conglomerate with a fast-growing digital industries business targeting factory automation.

Today’s smart factories collect data in real time to embed continuous learning into the production process, and the team has looked to capitalize on this trend within the portfolio. For example, Hebard cites Sweden-based Hexagon (HXGBF), which he considers a fast-growing provider of high-resolution cameras, scanning probes, through-the-lens lasers, sensors, and industrial software that’s helping customers transform digitally and become meaningfully more efficient.

Lastly, Hebard highlights that global sales of software and hardware used to develop and maintain artificial intelligence applications are accelerating and seem likely to be a major focus for C-level executives over the next decade. It’s all about teaching computers to sense, reason, adapt, and act like humans, which requires huge databases, substantial computing power and machines that can make rational decisions, he points out.

For this reason, the fund has emphasized names such as Nvidia (NVDA), a designer of high-performance chips that accelerate data processing in AI applications. The company also offers related software that helps businesses more easily deploy deep-learning technology.

“By our calculation, robot density rose about 20% a year for the past decade and appears on pace to sustain this growth for at least the next several years—which is why we see compelling investment opportunities in the segment,” Hebard says.

Securities mentioned were fund holdings as of September 30. For specific fund information, including full holdings, please click on the fund trading symbol above.

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