Although crises such as the novel coronavirus pandemic may cause some investors to be more cautious, others are looking to technologies and industries where growth is likely to return or even continue at higher rates. ROBO Global LLC last month announced its THNQ artificial intelligence exchange-traded fund. To create the fund, ROBO Global closely examined companies that are using AI or are developing AI infrastructure.

Countries such as China, France, and the U.K. have national AI strategies, and while the U.S. has one, it has largely relied on the private sector to drive innovation and commercialization. The global market for smart robots will surpass $16 billion by 2025, according to Grand View Research, and the market for AI in healthcare alone will exceed $6 billion by next year, predicts Forbes.

In 2013, ROBO Global launched the ROBO Global Robotics and Automation Index, which it said provides benchmarks representing the value chain of robotics, automation, and AI. Last year, the company, which has offices in New York, Dallas, London, and San Francisco, launchd the Healthcare Technology & Innovation Index (HTEC).

ROBO Global expands expertise in AI

“For investors, AI is still in the early stages of adoption,” said ROBO Global. “Historically, the stock market tends to under-appreciate the scale of opportunity enjoyed by leading providers of new technologies at this phase of development.”

“I was a computer programmer by training and came into finance,” said Lisa Chai, a senior research analyst at ROBO Global. “Our strategic advisors include roboticists, computer science experts, and data scientists. THNQ has seven Ph.D.s as strategic advisors.”

“In the ROBO ETF, we mainly looked at machine vision, and now we’re getting into software,” she told The Robot Report. “THNQ is a pure play for AI infrastructure and companies leveraging AI for massive opportunities. AI is at an inflection point, and we’re starting to see real business applications and use cases.”

Choosing companies to invest in

Although many companies claim to be using AI, ROBO Global has been selective for its new exchange-traded fund (ETF). “The strategy is the same as for ROBO and robotics and automation,” said Chai. “We have 70 companies and capture the AI ecosystem, from cloud providers hosting AI applications and the business-process subsector, as well as enterprise software companies using AI to differentiate their platforms.”

“For THNQ, we look at AI as not just machine learning — we’re also looking at companies that are developing beyond algorithms and going into neural networks and natural language processing,” she said. “With cloud adoption, capabilities will need to be automated, and there’s a need to derive intelligent data and efficiencies.”

“For example, as more data is created during the COVID-19 pandemic, retailers are dying to know how to use it in real time and optimize workflows,” added Chai. “Some AI companies are now coming out of stealth and are talking about their core strategies.”

“Before we launched the index in the U.S., we had many thoughtful and engaging discussions with a wide range of companies,” she said. “It was already available in Europe for 10 months. We looked for high revenue purity and companies investing in their own AI capabilities.”

“We also looked at companies making investments, not just to keep investors happy, but also in R&D, capex, and hiring,” Chai said. “They have to be developing AI in a disciplined, meaningful way with real business potential. We’re constantly scoring companies on multiple factors, and one has to meet certain thresholds to be in the index each quarter.”

THNQ and robotics

Relatively few companies are listed in both ROBO and THNQ indices, but there are several on the THNQ index that both produce and use robots, such as Amazon. Others own or invest in robotics companies themselves, such as Alphabet, JD.com, Teradyne, Shopify, and SoftBank. Still others support robotics suppliers, such as Cognex, Microsoft, NVIDIA, and Xilinx.

“iRobot is thought of as a pure-play robotics company,” said Chai. “However, in addition to producing 25 million robots, it has evolved into an AI robotics company. The latest-generation Roomba is so much more intelligent than the first one in 2002, and with 3D sensing and more advanced software, it requires no human intervention.”

“iRobot’s strategy is engaging in neural networks and research to enable devices such as robotic vacuum cleaners, mops, or lawnmowers to talk with one another,” she said. “I can’t think of another publicly traded smart home company like it.”

“With Amazon, we got a lot of pushback at first because some people thought of it only as an e-commerce platform,” Chai said. “They had no idea of how much resources it dedicates to building AI for search, Alexa, cashier-less stores, and being the leader in public cloud hosting. The company offers many machine learning services through Amazon Web Services, including SageMaker for building AI.”

“Teradyne [which owns Universal Robots, Energid, Mobile Industrial Robots, and AutoGuide Mobile Robots] makes testing equipment, and we’re starting to see equipment for sensors and AI, as warehouse robots get more advanced,” she said. “It’s easy to see how collaborative robots relate to ROBO, but for THNQ, we’re seeing how they are focusing resources and how the next generation of cobots will have more AI components.”

AI as a service

Like software as a service (SaaS) or robotics as a service (RaaS), ROBO Global has recognized a market opportunity for AI as a service in its new index.

“Business transformation was already under way before the pandemic,” Chai said. “It has been accelerated as the pandemic hit retail, financial services, and virtually every industry. Going forward, we think that enterprises developing AI and cloud capabilities will gain strong momentum. Thirty percent to 40% growth is probably understating it.”

“THNQ’s strategy is to provide strong exposure to enablers,” she said. “There has been so much progress with semiconductors that it’s only accelerating digital transformation and new revenue opportunities. Many C-suite managers or boards have had discussions: ‘We have the capabilities, why don’t we sell them as service?'”

“We’re bullish on tools that will ease the creation of AI like those for creating smartphone apps,” she said. “Building ready-to-use AI to improve productivity is not a fad. Rather than hosted storage in the cloud or hiring data managers, companies could scale apps as needed and reduce their IT infrastructure spend by 50% to 80%. It’s really the tip of the iceberg.”

THNQ tracks potential AI applications

“THNQ’s strategy is to have a broader view of AI, which McKinsey says could have a longer-lasting and bigger impact than the cloud,” Chai said. “It’s not just a technology ETF but about the AI revolution.”

“Companies like Appen and Nuance are using crowdsourcing to collect data, which is one part of building AI,” she said. “In healthcare, AI is starting to outperform radiologists.”

“While many AI startups will eventually be acquired, we’re excited to get into more advanced applications that need less human training and intervention,” said Chai. “Our strategy will evolve as we push the boundaries of where AI can grow.”