As Microsoft Buys Nuance, Here’s How To Profit From Exponential Growth In Robotics And AI

ROBO Global’s Bill Studebaker joined the Investing with IBD podcast this week. He discussed how investors can get exposure to emerging trends in the artificial intelligence and robotics space. He also talked about how the robotics race has led to increased acquisition activity by big tech names like Microsoft (MSFT) and Amazon (AMZN). Microsoft stock, an IBD Long-Term Leader, has gotten a boost after it bought speech recognition pioneer Nuance (NUAN).

Plus, we take a look at a few trade ideas in this theme: Ambarella (AMBA), Teledyne (TDY) and ROBO Global Robotics and Automation Index ETF (ROBO).

Audio Version Of Podcast

Video Version Of Podcast


Investors Spooked By Tax Hike News

Stocks sank in the stock market today amid headlines the Biden administration is eyeing a capital gains tax hike.

The Nasdaq climbed above the 14,000 mark in morning trade before reversing. It fell quickly as the tax news broke, spooking investors. But taking a step back, the tech-heavy index is still holding above its 21-day line after Wednesday’s upside reversal.

The S&P 500 and Dow Jones Industrial Average, which slipped by 1% in midday trading, saw similar action.

Microsoft Stock Holds Gains Ahead Of Earnings

Microsoft stock reversed lower Thursday, falling 1.6%. But it remains in the 5% buy range. The tech giant has been on a run since breaking out of a flat base with a 246.23 buy point on April 5. This breakout comes after a short consolidation period, with Microsoft stock finding support at its 50-day.

Microsoft is approaching earnings next week. The tech company announced this month it’s buying Nuance, a speech and digital imaging software company. The purchase will accelerate its move into the digital health care space.

Robotics Trends: Big Tech Goes On AI Buying Spree

Studebaker discussed a number of trends occurring in the AI and robotics space. He says the nascent space is poised for exponential growth.

“When you look at robotics and AI, what’s exciting about these technologies is that they’re not niche technologies,” Studebaker said. “Rather, they’re foundational technologies that are being applied to all industries and all markets.”

ROBO Global was one of the first to create a robotics themed investment vehicle. It launched the ROBO Global Robotics And Automation ETF in 2013. ROBO notched a 48% gain in 2020 amid accelerating investment in automation alongside the pandemic.

Additionally, Studebaker says the industry will see increased activity in mergers and acquisitions in the short-term. It’s driven by big tech scooping up AI and robotics technologies to round up their portfolios. He pointed to Amazon‘s (AMZN) 2018 acquisition of Kiva Systems and Microsoft’s recent $19 billion purchase of Nuance. This marks one of the largest purchases in Microsoft’s history. It’s second only to the $26 billion buyout of LinkedIn in 2016.

“The big successful CEOs (like Jeff Bezos and Bill Gates) understand the importance of where we’re going,” Studebaker said. “The change that we’re going to see in the next 10 years is going to outpace anything and everything we’ve seen up to this point.”

AI And Robotics Trade Ideas

In addition to the Microsoft buyout of Nuance, Studebaker reviewed a few companies in the AI and robotics theme: Ambarella stock and Teledyne stock. Additionally, he discussed how investors can get exposure to the growing sector through the ROBO Global Robotics and Automation ETF.

Ambarella Stock

Studebaker points Ambarella as an example of a “go-to AI stock” in this theme. The chipmaker had a powerful 15% move in November 2020 that lifted shares above the 53 price level. Since then, AMBA stock has nearly doubled, climbing as high as 137.21 by March 3 before pulling back in the larger tech sell-off last month.

“We see Ambarella emerging as a growth stock in the market that’s been paying a premium for semiconductor growth,” Studebaker said. He added that the company’s move into the autonomous vehicle space is a positive indicator for future growth — and makes it ripe for potentially becoming acquired.

Unlike Microsoft stock, which is well above its 50-day, currently, AMBA stock is trading below its 50-day line and hitting resistance at its downward sloping 21-day line. A move back above the 50-day line would be an especially positive development for AMBA stock.

Teledyne Stock

Teledyne is looking to boost its AI and robotics capabilities through acquisitions. The aerospace player, which specializes in digital imaging and defense electronics technologies, recently purchased FLIR Systems (FLIR) in an $8 billion deal.

Studebaker says this merger will create “a sensing powerhouse business.”

Teledyne stock broke out of a flat base with a 413.41 buy point in late March. Shares have run up some 6%, holding their 10-day line along the way. As of now, investors who bought at the proper buy point potentially have enough profit cushion to hold Teledyne stock into its earnings report next week.

ROBO Global Robotics And Automation ETF

Finally, Studebaker discussed how investors can get broad exposure to the robotics and AI theme through ROBO Global’s Robotics and Automation ETF. After nearly a 50% climb last year, the fund is taking a bit of a pause. ROBO is in consolidation mode and setting up a new buy point at 72.38.

Shares of ROBO fell from their high of 72.28 amid the volatile Nasdaq-led tech sell-off earlier this year. But, ROBO is rebounding. It’s currently hitting resistance at its 50-day line. Seeing the stock climb back above that level would be key for position traders interested in buying stocks at low-risk entries like the 50-day.

“There is an undeniable inflection point going on because of the performance capabilities of computing and the cost curve that’s bringing to the forefront that array of use cases,” in robotics, Studebaker said. “From an investor standpoint, I think you need to stay here. You need to be invested.”

Interested In Microsoft Stock?

If you’re looking for the next top stocks primed to make big moves, check out IBD’s Stock Lists page. To get IBD’s real-time assessment of names like Microsoft stock, check out IBD’s Stock Checkup page.

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