Future Adoption and Cultural Perspectives

Today's animal Spirit Talk your book is brought to you by Craneshares. Go to cranshares d. com to learn more about their rise of humanoid robots ETF. That's a ticker Coyid, KO ID. It's crranshares. com Len more Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ridhol's Wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions clients of Rrid Holdol'salth management may maintain positions in the securities discussed in this podcast Welc to Animal Spirit with Michel and B What of the Dominant investing themes O I should say let me phrase it differently The dominant investment themes over the last couple of decades It started with the internet. and then it went to mobile and Then it went to clloud. I don't know if Cloud is quite as big as thethers, but that was like the clloud took the baton and powered the bull market. And then of course it was digital AI, NVIidia, data centers, the buildout. And it does seem that very naturally the next thing coming is is humanoid robots At least that's at least that's the pitch. The future is going to be weird, man. And I can see it now. twenty thirty two, the S andP at fourteen thousand We're making a run to sixteen thousand and the bear screaming. Oh, if it wasn't for this theseese damn robots The S andP would be back down to ten thousand It is weird to think that Pe are worried about an AI bubble when the robot stuff hasn't even happened.' We how are we to say like when this could be a real thing So that's why we brought an expert on today. So Derek Yan is from Tin chairs, He's a sior investment strategist And Cranshares has an ETF now that is investing in the rise of humanoid robots which is kind of crazy to think. Th are that you would not pick out on your own. No, I would have thought this would have been like a MAG seven ETF. to be honest, like a lot of these are. I've never heard of most of the names in this in this funund. which tells you that it is actually going for for this stuff. so I met, quote unquote, met the robot down in Miami and interacted with it I was telling Duncan, think the robot remembers me? You're very easy to forget. you're very D' see the robot again, but I don't know I am. But the idea that we're going to have these is both scary and exciting because we probably will need them at some point. to take care of old people. I think it's way more exciting than scary. I guess the scary part would be people saying, oh my gosh, they're going to take all thes we're going have robots do all the jobs. What are people going to be even for anymore? But the exciting side of things is like what if in the future we have just too many old people that need healthcare? we need We need help at the hospitals. We need help taking care of old people. We need help around the house, whatever it is. there's'm buish on robots for humanity. I think that it's actually going to come at a good time now is it the next five years, the next ten years. Remember thei roobot, it becomes the biggest company in the world. What's the name of the company I Is it just called Iember. It remember. But I do love the bad guy in there, the giant dude with big nose from L.A Confidential Yeah.'s He's out of that guy. What's that guy' name? James Cromwell. There we go The interesting thing to think about is, is it going to be just one of the Mag seven companies that takes is it Tesla or is it Google or one of these companies? orr is it just this unknown company we've never heard of that comes from nowhere and goes, Ohh my gosh, this is the new Nvia. This is the company that figured this out. That's a good question. I feel like Any and I'm sort I'm, you know, pretty much making this up because I don't spend a lot of time in this space Anytime these companies reach like some sort of prromise they just get bought Yeah, you're right. You wonder if they will try to stay stay independent. but it's interesting. So this was a fascinating conversation for me. the presentation that in s was really interesting. The future iss going to be wild, man. I don't even know what to say if this stuff transpires I'm gonna let you get a robot first in your house to like fold your laundry. Okay. Let you have it for like six months before I'm okay. All right, fine. Did't kill Michael to sleep. Can you return your robot if you don't like it? What if you like, Yeah, me and my robot aren't getting along That's true. What kind of personalities does it have? I think it's weird that all the robots have to look like humans to make us feel comfortable Like whyy does the robot need a head? It doesn't need one, but it makes us feel psychologically better to think that it looks like a human I wonder if you could order a headless headless robot Why can't it have like six arms instead of two? Why does it have to have two arms and two legs? I want it to be like rocky on Project Ha. Anyway, here's our conversation with Drk Gon from Crangers Derek, welcome to the show. Thank you. Thank you for hudding me All right, so we're talking about the Cranehare's Gobal humanoid Robotics and Physical AI index ETF the Ticker is K O I day We've had you guys on a lot and Um, There's usually something, I usually make a joke about the ticker Kleb, Kwb or cllip orQb What's Coid? Wh'd that come from? What is this? Well, it's kind of like a humanoid, right crranare is humanoid. Yeah, S such a simple ten Simple, simple. embarrassed. I I should' be been able to crack that could. So No The whole market is resting on the shoulders of artificial intelligence and semiconductors And one of the supposed, hopeful biggest beneficiaries of this AI buildout is a completely new category of robotics bothoth in, I guess, factories where you know, not like the human robots, but they've been obbviously in place for years and decades now. but the humanoid part of it Am I going have somebody in my house A metal i robot type thing fold in my laundry. And if so, Yeah, I think that's the ultimate format of fiscal AI, right So Today is physical AI. I think of it just like doing general purpose robotics in a factory you have like Amazon deploying those logistic robotics that's stantially be like natural round of physical AI And you have quadrupad, the do shape So in three year, five year, I think the breakthrough in the model is going allow a humanid to in your home that can do actual work U todayoday we are already seeing like company doing that. like is not really, I think one of two year. Don Ril may need several years to be that genernal purposose in your home to doing a lot of things So I got to meet the the robot, the Cranech' robot, when we were in Dow Miami, meet it, interact with it. I don't know how you call it. So you talk about this idea of physical AI. So I'm just curious like obviously robotics have existed, not in this like humanoid form, or whatever you call it, but what does AI do that unlocks the ability of these robots to potentially like change the way we interact with them and use them and work with them Yeah, I mean, like robotics is not new, right? It's been talked about for twenty, thirty years is all over the factory But like those robotics are single purpose, right? They're caged kind of like industrial arms doing specific If you want to do another task, You have to program again, right? So Those are hard. programmed like single purpose robotics I think the nast wave of robotics is AI enabled So a lot of scientists, a lot of big tech companies are investing into the physical AI model that allow kind of like the machine to think, to plan. to have visual to have thinking abities so they can do multiple tasks They cant understand environment, right? So does C an S wave. That's where a physical AI going play. on to do like manufacturing Smarty to do a lar logistics to really help outy in the service sector even at home. So that's where opportunity is totally different. comp to single prourpose. This is going for is more channel propers It just seems like such a Impossible. thing to replicate the amount of tasks a human being does So for example Um, You walk into my house and you walk up the steps and then there's another flight and another flight to my bedroom And I've got one closet My wife and I share a closet We've got M Whites and colors do people separate whites and colors doing laundry? I have no idea. Not a laundry Um And then there's like things that don't necessarily go in the laundry thingsings that maybe get go to the dry cleaner. What if a robot like falls on the steps? I mean, for example How in the world so how far away are we? Because Elon keeps talking about this on the calls And it seems like nobody cares about the cars anymore. That's like an afterthought Um, but every call it seems like it's, you know, it's just gettingting longer and longer for delivery. And actually I want to talk about this. Tesla is not even the I thought it's the thirty seventh largest holding in the ETF. We'll get into the details. But this general purpose stuff Is this really going to happen Like you think like, yes, it's one hundred percent going to happen. It just might take Another ten years I mean, like Elon's always right on a direction. He's always late on delivery, right? So that's been the pattern over the last, I don't know, twenty years on EVs on on the even space ads I think like this is Depinly The directional is crap, right? So We have the similar pattern people use to train the digital AI, the large models. now They train physical models, right? So the top scientists today they do the VLA model, the vision language action model or the W models So you can actually use the same pattern recognition, same like large data set training The whole framework is already there Th's being successful training the HGBT or like claud usings that framework to apply our three three dimensional world incorporating action data is where doable we have seen great breakthrough over the last two years that we made so much progress compared to last twenty years That trend continue We could see the GP moment for our fyscical AI, right? So if the GD moment comes You're going to see there this, oh, shock. Oh That's previously it's JbitT two. now it's jBitT to three That makes sense. So when that moment came, everybody is not going to question o this is going to be another ten years We're going to see accelerating progress on the model capability as we did in the digital AI models It's interesting because You guys have a presentation on this and you talk about the things that robotics could be doing at factories, warehouses, hotels and hospitals and even in our homes Now some people look at this and they, oh my gosh, these robots are going to take away all the jobs Other people might look at this and go, actually, we need the robots in the years ahead. Like we need them to fill a hole because the fertility rates are declining There's going to be more old people that are going to be dying. and And we might actually need these robots. So like, do you think that there's a time frame where it's like actually the timing of this could end up being perfect humanity, not like this end game where it's going to just destroy everyones jobs currently is the right timing because well first I said, like AM model progress is so fast and those hardware becausecause investment into the EVs and smartphones over last twenty years the hotwares actuators, sensors, batteries become like so cheap and R? So we have worry good robotics Th as you said, the ageing population, the demand, the shortage of labor is a stract a problem. Not only here in the United States, but like Europe, Asia This is global challenge for many countries that eventually you need a solution, right? to activity And and of course, as today, there's a lot of repetitive dangerous jobs out there that our human is probablyrobably not suuitable to do So that's kind of like the easy replacement for a humanoid be there. on likeike Firefider, right? So we have like quQal pad now. Go into those fiire and save people's lives So those like obvious use cases. Yeah, the use cases are incredibly obvious. T many to name. It feels like the cost is going to be prohibitive At least at first inside the Somebody's home I think I've seen estimates of fifty thousand, one hundred thousand, whatever whatever it ends up being Do you think that these are going to born by the corporations to start. Like Amazon is going to start building these humanoids Tesla And then eventually after a couple of years and training whatever, like obviously, you know, the mega meega wealthy as side Um, do you do you see it playing out like that I would think this' playing out very similar to smartphone in early days And EV is in, say twenty twelve. U, initially The manufacturing the cost of components going to be high Right? Think about like EV, take example, right? battery cost of say CATL went down ninety percent seems coming early days to today job of cost is enabling EV to be affordable Right. So we can see Why a similar trend happening We're you seeen that? like in actuators in the detector's hand in those sensors in those batteries. U Tod, those actuators, those like bearings, those reducers, precision control takes most of the cost for building a humanoid, building a quadrupad But I think as the economy of scale continue to happen We're going to see more affordable humanoid plash that you can own I'd say twenty thousand dollars soon So I'm curious, I wan to get into how you guys end up taking this idea that's potentially far out from the future and then investing in it. But I'm curious where most of these breakthroughs are coming from because it seems like everyone assumes that all the innovation comes from the United States, but it also seems like more people come around to the idea that especially since Crane shares is such a China focused U investment firm that a lot of especially on the manufacturing side of things and technology, a lot of it is coming from from places like China and South Korea. like how much of this is a worldwide phenomenon We believe this is indeed a global phenomenon Um, that I think this is going to be global demand because like we have seen labor shortage across Asia and the US. Um but I think it Differently, right? US, a lot of companies focus on the intelligence side. on the model side, you've talked about it private leaders Figer AI, right? like upptronic many like companies just like bragging their kind of like AI model capabilities, right? The ability to think, to think, to do actions accordingly. But in China it's very different. in South Korea in Japan A lot of companies are really the supply chain company or the manufacturing company that can provide very efficient solutions for hardware We kind of see that trajectory for iPhone for EV Um, but like I think like today on We have seen early shipment coming out of China, right? So L year, there's twenty thousand unit of humanoid as she is shipped globally. And that's from AGI bot from Unitry, from Ubitag o Chinese companies So early days, I think like China has been achieving some scalable manufacturing on this But US is working on, I think more the model side which like they capture more of the value. We're seeing a lot of startups in the US actually training their AI models using like unitrees or a lot of those hardware. So Kectry can have like open source Tubeing the light platform that leveraged the kind like low cost China manufacturing adding a lot of value using the U. S. intelligence part that it can create a piece that's affordable and super intelligence I want to talk about the actual companies, the stocks inside of the ETF So I asked Claude to tell me about the combined market cap of the top ten names because I was going through this list and I don't recognize any of them. The top ten combined market cap As of march twelfth, we're recording this on may fourth, but the computer says as of march twelfth Aord to Clod is a hundred sixty billionll And you've got a global portfolio The top companies from Australia Its twelve and half billionllionars market cap called Linus Rare Earths U It is the largest rare earth producer outside of China The next one, you've got Rinbow robotics out of Korea nine billion dollars market cap It says they do humanoid robots. Samsung is the top holder top shareholder at thirty five percent You've got Dusan Corp also out of South Korea. the next one is from the U.S. a company called Regal Rexnerd Next one is from Taiwan. you got one out of Europe A tell Dine. o, Ive forard of that one But these are all the point is The top ten combined market cap is one hundred sixty eight billion dollars. And these these companies have had a hell of a run. The ETF is up I think fifty percent year over year But that still sounds tiny. Like it sounds like the opportunity, like is this a five trillion dollar opportunity here Obviously it' be volatile, you know, like startuy type of investments. But what does the opportunity set look like? and I know we're projecting here. like, do you think that these are going to be good businesses and gigantic businesses Or is this going to be like the new category, like the airplane where it's like, yeah, new amazing invention. biggest piece of shit businesses ever completely uninvestable. I think on near term because this is more Those are like established business, right? If you look at the profile, right Pan, they used to do like semicond doctor. casting business But now they're getting this additional a ramp from the humanoid from the fisysical AI Right? So the whole business logic s got to be rerated 've gott to be rethink valloting Westerers We haven't seen similarly a lot of those traditional auto companies. traditional semiconductor companies be rerated because the AI because the data center buildout, right? So that's kind of like the the most hot rain of the last year. So on the near term becausecause of the ramp up of the humanoid those companies are going to be rerated because they their business model For the pfolio side, I mean like we're not investing, say MVia or passast liar according to their market cap This is more like diversified, equal weighted mostost of the values is actually capture body by those actuator provider being provider harmonic drive reducers a lot of material companies. So is the ecosystem play that captured exposure more on the manufacturing side. or the component side of the humanoid ecosystem. So you're not getting exposure that's really similar to say NASDAQ or SMP but you're getting a lot of international. Europe are Asia based industrial company That us probablyb like sounds old beneath their like traditional business, There's a transformation is happening that we believe over the next three to five years 's going to be recognized by investors. So it's interesting that this because a lot of these AI and futuristic ETF's, you look at the holdings and it looks like a NASDAQ one hundred ETF, right? It doesn't. But yours, Yeah, to Michael's point, you look at this, and there's a lot of companies in here that I've never heard of before that I don't recognize Do you think that the winners are going to be these up and coming companies or the picks and shovels or whatever and not necessarily the big players, I'm curious how you think about like Are some of these winners going to be these companies that are not household names right now? Yeah, so today, a lot of humanoid manufacturers or brand are still in the private stage, right? Figure AI, right? That's almost like forty billion valuation Eptronic, Y X Tesla is now shifting. In China, there's unitary, AGI bot in South Korea, in Japan, in Europe, there's so many like players out there We think this is kind of like early days for a smartphone I don't know who's going to be the N iPhone. orderizing EVs, right? Wh's going be the Tas Tesla U it's hard to that like concentrated, who's going to be the brand owner? easier to think industry is going to likely to success. We're still in the early stage of SCve adoption But as we entering to the S curve. We're going to see the ramp up production and require the whole supply chain to get ready. So investing in the pick and shrovers for this industry makes more sense at this stage compared to betting on some few names that are like, o, Maybe it's Rinbow robotics, maybe it's Tesla We are batting the whole manufacturing side of the business. some curiousy Like who do you think are the picks and shovel? So you have this great slide showing the full spectrum of the humanoid value chain And I wonder where you think the most valuable will accrue and and what's also like the hardest of the three stools of the like to to build here. You've got the body Um, the brain And then the integrator. C you talk about those those three areas? Integrators are the brand, right as I mentioned. So today most integrators are private So several public names, Rinbow Rbotics, as you mentioned, backed by Samsung UPax inv basasation in Shenzen, they partnnerered with BYD Then you have like traditional auto company like Tesla now transform their business. Why are a few integrators today on public space onn in tatant part, there's a lot of like Ad computing a lot of those like intelligence player, technology players providing like Sams to those manufacturers. That's also about like twenty percent of exposure The majority of the exposure actually is in the body where we believe actually captured most value. because you look at the cost of the humanoid today most of the cost actually come from the actuator. the acterator, theetector's hand bearing the the boss groups Those companies like they are the market leaders globally, harmonic drive, leader drive, San Jua Turpu you have a lot of like even like manufacturing company providing a humanid solution here in the United States like Jabil They partner with Eptronic, Tadon, they actually work with Amazon. they have a unit called a universal robots. So universal robotics Those are the players People may not know their humanoid side of the business, but actually they get a lot of orders from say Amazon or just other humanoid companies. So Increasingly, people can recognize the value for those units. as the growth for humanoid likely to double triple we're starting from a very low base Th about like on twenty thousand unit last year actually going to p millan unit in few years D come like the industry we' betatting on. Do you try to take it one step further and bet on a company like Amazon and think about who the biggest beneficiaries are of this or is it no,'re just we're just focused exclusively on the sort of production of these robots and then whoever uses them, That's a different story No, we want to get like what's kind it them pureist exposure U too bad on this. desk and a humoid the adoption of humanoid and transform the business Anal's great, right? But like the contribution perspective is going to be low, right? Amazon going to save some cost But how growth coming from their like, say Fraud and e commerce on We think What come I did? direct beneficiaries is going to be the companies actually, their revenue going to be more than averag investor projected and by a large surprise That's going to trigger a rebalue So we targeted those company potentially if say like Tasla's Alder Kon. They're Ramu double. on You asked her caught it by surprise. Oh. How do I think that? right? So F story, similar to a lot of I think like now the like meammory companies like or KPU companies or like optical companies, those companies got to rerated. because The new revenue stream come from the AI dataentribute that people don't think going to happen Humanoid side is similar here that a lot of people just ask you The question if the humanoid is going to take up So we believe As those models progress, eventually one day the humanoid industry going to ramp up And who's going to be the derirect? beneficiaries. So Those are the basket weared I mentioned the performance of the ETF. I just need to Set the record straight. This thing launched in July in June of twenty twenty five So not quite up fifty percent, well, up fifty percent, not quite year over year, but even in a shorter time frame. but just wanted to note that There's been a lot of thematics pop up over the years U A lot of things that were exciting that have since fizzled out The one that comes to mind at least for me is the three D printing revolution that' sort of I mean, I have a three D printer, My kids play with it, but it's, not really a giant industry. Why is humanoids not going to face a similar fate? I think like compared to a lot of the niche themes Humanoidis is a major thing Think about like all the resources that like you have like Jen Seng Huang, you have like Elon Musk you have all the top AI researchers on Silicon Valley that's putting their resources on. This is something, I think bigger than digital AI. As Jason Han mentioned, this is a forty trillion dollars total transport market. Th about the automation for the labor So asked This is compared to EV. A smartphone and potentially bigger If we're going to see, I think of most investors, they are already positioned in a digital AI. And we have the very natural transition digital AI to physical AI So when that happened The opportunity is already there. U like just as you said, the performance is early sign of the market is start to believe in this U So Marcuso is right at some point We think like us in Wes getting more attention to this namee Those companies gonna to get aard money invested by institutional investors and global investors I took my first Waymel ride in the last six months or so and was blown away. Is a company like Google well positioned for this type of industry? Is there a translation there from those self driving cars to robotics or is do you think it's completely separate industries? Is there some sort of synergy there There's a lot of synergies. Actually, like autonomous driving is also another like application of the physical AI those cars are eventually like autonomous robots. They can like see, they can like make decisions tonously. So we're applying the similar trend to under type of rollas mostly early stage in industrial application then into the retail and Svice actor. So we' you seeing early success of punsriving So D makes us believe the generalized capability is real, right? You are comfortable riding the Wimer. There's a lot of companies now doing a ton of driving that's ready to do like mass deployment U So why not just using the same technologies now ind the robots That can be generalized, right? And to do a lot of generalized production in the manufacturing, logistics and sericeceptors The logic is wry Clear The trend is veryite clear Tounts of money, tens of billions of investment peopleeople are putting their mountoney on this the stakeholders the researchers So when Like tring not another company want it happen Wh likely to happen. So to put it that way, right some crazy Statistics From your presentation, this comes from the World Health Organization. Aroximately thirteen point five percent of the world's population was at least sixty years old in twenty twenty And they expect that to increase to twenty two percent by twenty fifty Bank of America Global Research is estimating that Humanoid robot shipments will surge twenty thousand units in twenty twenty five to ten million twenty thirty five which is an eighty six percent Kager and finally they're saying the robot population could reach three hundred million byy twenty forty. Those are some serious numbers I mean, Just like as Jason Huan said, like We have forty trillion total dresspable market out there, right? So 's a very long term multi decade buildout to achieve that target down the road, like think about like today, right? you have I don't know one point. be a unit of on auto like vehicles on the road, right? So we cheaped that over the decade or you deces like EVs, D like you have like a four billion smartphone, right? We built out in like fifteen years So for humanoid, you would think there's three point five BN working population right now today. So promised like around like one humanoid per working class human You're going to need three bit in down the road, I think that's the Bankco of America, Mernch production U so That's not really crazy compared to the EVs and smartphones today I'm not going to be an early adopter because I said the first person who buys a robot and gets killed by a robot, you can't blame The robot, you gott to blame the person. So I'm just I'm just going toipe into this market a little bit, okay? becausecause I'm not sure if the robots are going to come after us or not. I want to make sure that there's There's protection in line Exactly, exactly. I think that's a risk, right? simimilar to Ahanous driving The risk is really regulation, union, a lot of like pushback on the deployment U you have like similar challenges by now. R this could this could be a political issue, right? I was I wasoking obviously, but this is going to be a political issue Yeah, exactly. I think like, ' perception on humanoid is still like very negative on the Western culture at least due to a lot of movies I grew up in Asia and culture is very different. like where the kids, they grew up watching animation that humanoid and robots are friends are human, right? help humans. So you think that the actual adoption will be quicker in places like Asia I think so because just culturally people embrace those robots. like you're really seeing a lot of like robots in restaurants and hotels, and airports. So people are like People love those like at least like culturally is very like robot friendly. I think like now, in the United States potentially The adoption first going happen in mostly manufacturing side, right? potentially have zero humans So you don't need to worry about how people can push back you're going to be fully autonomous, right? So a lot of logistic that's already happening. You probably have like some remote oversight for like warehouses in the United States you're loading a truck, you Youre like putting in warehouses, you're sorting the packes So a lot of those things can be fully automated already. That market is huge. On the manufacturing side, I think we are talking about labor shortage here the United States, how do we we industrialize America Again, That's the ultimate solution to deploy Humanoids so we can have a very competitive factory here in United States U So I think like that's kind of like the solutions There's going be movies made and real crime podcasts about humanoid killing a spouse and the or the husband killing the spouse. It's usually it's always the husband Blame me on the robot. They kind of did this, I guess, with the movie Meghgan, but ye I'm predicting an explosion that in that category. All right, Derk I appppreciate you coming on today for people that want to learn more about the Toyed with the K. ETF How do they get ahold of you Yeah you can check crraangers d. com slash ko ID for more information. com All right, appreciate time Thank you Okay, thank you to Derek and crrane chairs members check out cranchhairs dot com for learn more about Cid. Email us animal spirits at the compompoundneews dot com