Think robotics stocks are overhyped? In fact, they're just taking off.

MW Think robotics stocks are overhyped? In fact, they're just taking off.

By Charlie Garcia

Columnist Charlie Garcia responds to readers concerned about robots replacing jobs and about the companies that make them

Editor's note: Columnist Charlie Garcia answers his virtual mailbag every Friday.

Dear Charlie,

Who's believing this propaganda? These so-called "robots" are just machines built to do a very specific task.

I have not seen a single robot, live in person, doing anything useful, because they can't develop any. Robots and artificial intelligence are the biggest scam in the history of the world.

Nancy

Dear Nancy,

I have never seen a semiconductor factory in person. Yet somehow I'm typing this on a computer.

Amazon.com (AMZN) has a million robots moving packages right now. Not in a lab. Not in a PowerPoint. In actual warehouses with actual addresses that you can physically visit. They're doing the very specific task of moving boxes from Point A to Point B, which coincidentally is the entire business model of a company worth $2 trillion.

Walmart $(WMT)$ just spent $520 million on systems from Symbotic $(SYM)$. Walmart is many things, but "easily parted from half a billion dollars for imaginary technology" isn't one of them. Sam Walton's ghost would come back to haunt the company's chief financial officer.

You think robots don't do anything useful? The phone in your pocket was assembled by robots. The car you drive has 30 computers and was welded by robots. Your prescription drugs were packaged by robots. The warehouse that ships your Amazon orders is increasingly staffed by robots.

But you're right about one thing: You haven't seen them. Most people haven't. You know why? Because they work nights in warehouses where humans used to work.

As for "biggest scam in history," I'd like to introduce you to Social Security's actuarial tables, but that's a different column.

Charlie

P.S. If robots are a scam, someone should tell Boston Dynamics, because its Atlas robot just did a backflip. Which is more than I can do.

Dear Charlie,

You consistently pump some of the most overvalued stocks in the market. Maybe you should do your due diligence before recommending these to people.

Debbie

Dear Debbie,

Fair point. Due diligence is always smart. So let's do some together.

Cognex $(CGNX)$ at 60 times earnings. I wrote that it's expensive. I actually used that exact word: "expensive." Then explained why the vision systems might justify the multiple. That's not pumping. That's showing both sides.

ABB (SE:ABB) (ABBNY) sold its robotics division for $5.4 billion. The market approved. If you think it's overvalued after that transaction, you might be on to something I missed.

Genuinely. I'm always looking for the other side of a trade.

Symbotic with no GAAP profits and a $41 billion market cap. I wrote: "If Walmart pulls out, Symbotic's dead." I also noted that 87% of its revenue comes from one customer. If that's pumping, I'm doing it wrong.

I laid out the bull case because the money's flowing into warehouse automation. I showed which companies are catching it and what their risks are.

You think they're overvalued? You might be right. Markets overshoot. They always do. But overvalued and uninvestable aren't the same thing. Sometimes you make money in overvalued stocks. Sometimes you lose your shirt. That's why I gave you the numbers.

I don't have a position in any of these companies. No compensation. No undisclosed conflicts. Just a guy with a Bloomberg terminal trying to explain where capital is moving and why.

But you're absolutely right about one thing: Everyone should do their own homework. Including reading past the ticker symbols to the risk paragraphs.

Appreciate the pushback,

Charlie

P.S. I listed four stocks. One I called expensive. One I said could die. One I said has terrible liquidity. One I said sold its best division. If that's pumping, Jim Cramer owes me an apology for stealing my technique.

Dear Charlie,

Why is everyone acting like these robots never need maintenance or break down and need a $50,000 replacement part?

If it's not programmed correctly, it can destroy valuable merchandise before it is corrected, and you can't dock its pay because it'll break down the next day and require another $100,000 replacement part. Now you're at a loss.

Adam

Dear Adam,

You're right. Robots break. They need maintenance. They occasionally destroy inventory. I'd be worried, too, if I thought Amazon forgot about repair costs while calculating $9 billion in savings.

But you're comparing fantasy robots against fantasy humans. A Proteus costs $130,000 over 10 years, including maintenance. A warehouse worker costs $500,000 including benefits, turnover and the HR department. The robot only needs to be 25% as productive to break even. It runs 24/7 instead.

When a robot screws up, Amazon pushes a software patch at 3 a.m. and the million-plus fleet gets smarter overnight. When Dave screws up, you get a performance improvement plan and Dave gets resentful. You can't patch Dave's firmware.

Japanese car plants run thousands of robots at 0.01% error rates because they simulate before deploying. Amazon does the same. When parts fail, they swap modules in minutes. You don't replace the whole robot any more than you replace your car when the alternator dies.

Amazon's got $200 billion in revenue and engineers smarter than us. They're not gambling. They're executing a decade-long plan with math that works.

The question was never whether robots have costs. It's whose costs scale better over time. Jeff Bezos already voted with his capital allocation. So did Walmart. So did Target.

The math doesn't care about our feelings.

Your pal in economic inevitability,

Charlie

P.S. When a robot fails, you call maintenance. When an employee fails, you call HR and legal. Amazon's legal department prefers the first option.

Charlie Garcia is founder and a managing partner of R360, a peer-to-peer organization for individuals and families with a net worth of $100 million or more. Garcia has no ownership in any of the stocks mentioned.

Agree? Disagree? Share your comments with Charlie Garcia at charlie@R360Global.com. Your letter may be published anonymously in the weekly "Dear Charlie" reader mailbag. By emailing your comments to Charlie Garcia, you agree to have them published on MarketWatch anonymously, or with your first name if you give permission.

You understand and agree that Dow Jones & Co., the publisher of MarketWatch, may use your story, or versions of it, in all media and platforms, including via third parties.

Tiger Brokers

Think robotics stocks are overhyped? In fact, they're just taking off.

At the request of the copyright holder, you need to log in to view this content

Most Discussed