Robotics companies are the overlooked nuts & bolts of the AI revolution
- These undervalued robotics AI stocks offer smart exposure to AI’s real-world impact on manufacturing and automation.
- Siemens AG (SIEGY): Industrial automation giant with end-to-end hardware/software stack.
- PTC Inc. (PTC): Disrupting the product lifecycle management software market, while pivoting to a recurring revenue model.
- Teradyne, Inc. (TER): Leader in semiconductor test equipment poised for rebound as memory market stabilizes and AI chip demand accelerates.
Source: shutterstock.com/Allies Interactive
The recent AI rally in 2023 has been exhilarating to watch, with AI-related tech stocks driving much of the market’s gains. But as Nvidia’s (NASDAQ:NVDA) struggle to break $500 shows, the party may be coming to an end. While I still believe in the long-term potential of artificial intelligence, prices for many AI pure-plays have gotten ahead of themselves. There’s only so much investors are willing to pay for the promise of future growth.
However, some under-the-radar AI stocks focused on robotics and tangible operations remain attractively valued. As exciting as software and machine learning are, robotics is where the AI rubber meets the road. That said, many of these stocks don’t get the same love from Wall Street. That smells like opportunity to me.
While white-collar AI companies have largely priced in exponential growth for years to come, robotics has much more room to run. As AI capabilities advance, we’re reaching an inflection point where robots can take on increasingly complex manual tasks. The companies enabling this stand to be huge winners.
Siemens (SIEGY)
Siemens (OTCMKTS:SIEGY) has faced its share of struggles, but the German industrial conglomerate has rallied strongly following the pandemic. The company’s automation and robotics technologies are critical for factories looking to implement more advanced manufacturing techniques. Siemens offers an end-to-end stack encompassing hardware, software, and services. This provides Siemens with a significant competitive advantage.
In its latest earnings report, Siemens posted decent Q3 results, with revenue up 12.5% and orders up 15% year-over-year. However, the company noted that demand normalization in China slowed growth in specific product segments. I see this headwind as temporary, as Siemens’ long-term secular tailwinds remain intact. Its automation backlog also sits at a healthy €12.5 billion, providing revenue visibility.
Trading at just 13-times forward earnings, Siemens looks attractively valued, especially considering its leading market share and financial strength. Analysts forecast 14% revenue growth this year and steady margin expansion. Siemens pays a decent 3% dividend yield as well. I believe the recent slide in its stock presents a compelling buying opportunity.
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PTC (PTC)
Unlike Siemens, PTC (NASDAQ:PTC) is a pure-play software company with a major footprint in industrial robotics and automation. The company is successfully executing a pivot towards recurring software sales, driving rapid growth. In its Q3 earnings release, PTC posted 25% annual recurring revenue (ARR) growth, which came in ahead of expectations.
Some worry that a slowing economy could hit PTC’s growth, but its performance has remained remarkably resilient. The company continues rapidly gaining PLM market share from legacy competitors, while its recent acquisitions of ServiceMax and Arena expand its presence in adjacent spaces. PTC now forecasts 13% organic constant currency ARR growth for FY23, at the midpoint of its guidance range.
Still, at 34-times forward earnings, PTC isn’t exactly cheap. However, this premium valuation is warranted, given its double-digit growth trajectory. Consensus estimates call for 12% annual revenue growth over the next three years and significant earnings per share growth. PTC also generates plenty of cash to support its growth investments. While not a screaming bargain, I think PTC’s premium multiple is justified.
Teradyne (TER)
As a leading supplier of automated test equipment to the semiconductor industry, Teradyne (NASDAQ:TER) provides mission-critical technologies to manufacture chips for robotics and AI applications. However, TER stock has languished amid a downturn in the memory and smartphone markets.
That said, I believe the negativity around Teradyne’s near-term results is overblown. The company posted better-than-expected Q2 earnings, driven by strength in the auto and industrial markets. Management also noted strong demand from high-performance computing segments tied to artificial intelligence. While its robotic unit faces macro uncertainty, Teradyne’s core semiconductor test franchise remains resilient.
Trading at 36-times forward earnings, TER stock looks fairly priced, especially considering analysts expect a sharp rebound with roughly 20% sales growth over the next three years after a 15% decline this year. Its balance sheet is rock-solid as well. For investors with a long-term mindset, I think Teradyne’s recent underperformance presents a good buying opportunity.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
