The robots are coming: The investment potential of embodied AI

As artificial intelligence gains physical abilities, how will industries and markets be transformed? Wealth Management’s Global Head of Thematic & Macro Investing Ellen Zentner sits down with Morgan Stanley’s Head of Global Autos and Shared Mobility Research Adam Jonas for a conversation on the rapid transition of AI into the physical world.

In 1995, the renowned American astronomer Carl Sagan warned of a future where the US might lose its manufacturing edge, leading to significant geopolitical and societal challenges. Fast forward to today, and we find ourselves on the brink of a technological revolution that could redefine this narrative: the rise of embodied AI.

Artificial intelligence (AI) is no longer confined to the digital realm – it is poised to enter the physical world, transforming industries and economies. While AI has already revolutionized sectors like finance, healthcare, and customer service, its potential to impact the physical economy is just beginning to unfold. This shift is driven by the emergence of “embodied AI” – robots and machines that can perceive, learn, and interact with the world around them.

The concept draws inspiration from nature, where the ability to move independently, has been a defining characteristic of life for billions of years. Just as the Cambrian Explosion marked a period of rapid diversification in the natural world some 500 million years ago, we are on the cusp of a similar explosion in tech – one likely to blur the lines between mobile devices and robots, creating a plethora of opportunities for investors. Here’s what you should know.

Embodied AI refers to AI systems integrated into physical machines, sometimes capable of making decisions and taking actions independently. These systems can range from autonomous vehicles to humanoid robots, each designed to perform specific tasks. The potential applications are vast, spanning industries such as transportation, healthcare, manufacturing, and more.

The implications of embodied AI are profound. As these systems become more prevalent, they could lead to significant efficiencies and cost savings across various sectors. For instance, autonomous vehicles could revolutionize transportation, reducing accidents and traffic congestion while increasing productivity by freeing up time spent commuting.

The rise of embodied AI presents a unique investment opportunity. As AI systems become more integrated into the physical economy, they could create new markets and expand existing ones. Investors should consider the following key areas:

1. Robotics and automation: Companies developing advanced robotics and automation technologies are at the forefront of this revolution. These technologies can enhance productivity and reduce costs in industries like manufacturing and logistics.
2. AI hardware and software: The demand for specialized hardware and software to support embodied AI systems is expected to grow. This includes sensors, processors, and AI algorithms that enable machines to perceive and interact with their environment.
3. Data and connectivity: As embodied AI systems generate vast amounts of data, there will be a need for robust data management and connectivity solutions. Companies providing cloud services, data analytics, and secure communication networks stand to benefit.
4. Energy and infrastructure: The deployment of embodied AI systems will require significant energy resources and infrastructure upgrades. Investments in renewable energy and smart infrastructure could support the growth of these technologies.

While the potential of embodied AI is immense, there are challenges to consider. Ethical and regulatory issues surrounding AI deployment, data privacy, and job displacement need to be addressed. Additionally, the development and integration of these technologies require substantial investment and collaboration across industries.

Embodied AI represents a transformative shift in how we interact with technology and the world around us. As these systems become more integrated into our daily lives, they offer significant investment opportunities that could reshape the global economy. By understanding the potential and challenges of embodied AI, investors can position themselves to potentially capitalize on this emerging trend.

As we navigate this new frontier, the story of embodied AI is one of innovation and opportunity. It offers a chance to redefine industries, create new markets, and potentially disprove Carl Sagan's prophecy of a declining manufacturing sector. The future is here, and it’s embodied in AI.

CRC# 4525416  05/2025