Tariff Impact on Robotics & AI
Discover how ongoing tariff discussions are reshaping the robotics and AI landscape.
Despite market fears creating pressure on automation stocks, we reveal why these companies are actually critical to domestic manufacturing strength and supply chain resilience. Learn why current manufacturing Purchasing Managers' Index trends, global investments on American soil, and policy priorities in key sectors point to investment opportunities where others may only see risk. The real story behind tariff impacts may surprise you.
Evaluating a portfolio on current or potential tariffs is a bit of a fool's errand, as we believe the exercise misses the mark entirely. Even companies that are "100% domestic” and that "don't require foreign input costs” would likely be impacted by tariffs. In our view, most US domestic companies involve a complex, global supply chain.
We saw USA manufacturing PMI climbing upward in January, still positive but slightly less so in February, and a decline in March. Unfortunately, we do not have high hopes for April Manufacturing expansion because of the ongoing confusion surrounding tariffs. This comes off the heels of three years of record high domestic manufacturing construction, which should be ready to roll when the dust settles, assuming we do see any more domestic manufacturing mandates.
Many non-U.S. automation companies continue to invest heavily on American soil and are reinforcing that they are partners in what we have been calling the “U.S. industrial renaissance”. It is our opinion that there will be minimal-or-zero tariffs on tech partners collaborating on automation and robotics, particularly on those who have already shown alignment with US investment as a growing end-market.
For example, Japanese companies have been following the money to America. Fanuc has accelerated its North American build-out, investing ~$250 million since 2019, including new campuses in Michigan and new production facilities in Mexico and Canada to support U.S. demand. We expect the focus of the current administration to remain primarily where the Biden administration was focused: areas of sovereign domestic resilience for start-to-finish, end-to-end capabilities in key sectors. These sectors include defense, healthcare (essential drugs and medical equipment), semiconductor (acceleration of Biden CHIPS Act), and energy infrastructure (Inflation Reduction Act).
We also expect that - again despite uncertainties and noise - we will see acceleration of domestic investment in these areas. As an example, it's rumored that TSMC is accelerating their third waifer fabrication plant in Arizona to start this summer, well ahead of schedule. This type of activity could greatly support both semiconductor equipment as well as overall automation players.
The tariff talk isn’t just about the United States. We continue to see India and Vietnam come into focus as new major manufacturing hubs ex-China, and we believe these economies should see robotics and automation tailwinds for years to come.
Market misperceptions have created a potential entry point in high-quality automation businesses. Short-term macro headlines – trade wars, tariff announcements, geopolitical tensions – have put serious pressure on these stocks, as investors erroneously lump them in with “trade risk” exposures. But we see this as a classic case of the baby being thrown out with the bathwater. The reality is that most of these automation companies are mission-critical to the very trends that US administrative policymakers seek to encourage: domestic manufacturing strength, productivity gains, and resilient supply chains. Where others see tariff risk, we see companies trading at discounts to their intrinsic value due to fear - not facts.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only and should not be interpreted as legal opinion or advice.
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The risks associated with investments in Robotics and Automation Companies include, but are not limited to, small or limited markets for such securities, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation. Robotics and Automation Companies, especially smaller, start-up companies, tend to be more volatile than securities of companies that do not rely heavily on technology. Rapid change to technologies that affect a company's products could have a material adverse effect on such company's operating results. Robotics and Automation Companies may rely on a combination of patents, copyrights, trademarks and trade secret laws to establish and protect their proprietary rights in their products and technologies. There can be no assurance that the steps taken by these companies to protect their proprietary rights will be adequate to prevent the misappropriation of their technology or that competitors will not independently develop technologies that are substantially equivalent or superior to such companies' technology.
The risks associated with Artificial Intelligence (AI) Companies include, but are not limited to, small or limited markets, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation. Rapid change to technologies that affect a company’s products could have a material adverse effect on such company’s operating results. AI Companies also rely heavily on a combination of patents, copyrights, trademarks and trade secret laws to establish and protect their proprietary rights in their products and technologies. There can be no assurance that the steps taken by these companies to protect their proprietary rights will be adequate to prevent the misappropriation of their technology or that competitors will not independently develop technologies that are substantially equivalent or superior to such companies’ technology. AI Companies typically engage in significant amounts of spending on research and development, and there is no guarantee that the products or services produced by these companies will be successful.
The risks associated with Medical Technology Companies include, but are not limited to, small or limited markets for such securities, changes in business cycles, world economic growth, technological progress, rapid obsolescence, and government regulation.
Diversification may not protect against market risk.
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