The past year has been eye-opening in terms of the potential applications of artificial intelligence (AI), and we've only scratched the surface. The ability to automate certain tasks is expected to usher in a tidal wave of productivity, the likes of which have rarely been seen before.
"The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone," wrote Microsoft co-founder and former CEO Bill Gates. "Entire industries will reorient around it. Businesses will distinguish themselves by how well they use it." Far from hyperbole, AI has become the rallying cry for the future of technology.
One company poised to benefit from this secular tailwind is Symbotic(NASDAQ: SYM). The stock has enjoyed a blistering rally over the past year, but that could be just the beginning.
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The warehouse of tomorrow
While it isn't a household name, Symbotic might be the most important company you've never heard of. It provides AI-driven supply chain automation solutions that are revolutionizing logistics. Consumers are demanding faster delivery times than ever before, even as the adoption of e-commerce continues to rise. Symbotic provides the technology that solves this problem, carving out a lucrative niche for itself in the AI ecosystem.
Symbotic developed an AI-powered system, protected by more than 334 global patents, that automates the processing of inventory, moving cases and pallets around warehouses and distribution centers while also loading and unloading trucks. Some of the world's most high-profile retailers are Symbotic customers, including Walmart, Target, Albertsons, and C&S Wholesale Grocers.
The company's automation system combines comprehensive software architecture with a cadre of fully autonomous bots, resulting in a turnkey, end-to-end solution that takes the complexity out of warehouse logistics, whether it's in upstream distribution centers or downstream e-commerce fulfillment.
Perhaps most importantly, the system uses AI to optimize both traffic and storage, wringing every available inch out of the available real estate and squeezing much more inventory into the same amount of space. The result is a significant amount of cost savings, increased efficiency, lower labor expenses, and reduced transportation costs and operating expenses. The system pays for itself in just a few short years, saving users millions of dollars every year thereafter.
A vast and growing opportunity
More and more shoppers are turning to online retail, and that trend is expected to continue. Global e-commerce sales are expected to hit $6.3 trillion in 2024, climbing to $8 trillion by 2027, according to eMarketer. That trend is expected to be fueled by the proliferation of mobile sales, which are expected to climb 14% to $2.5 trillion this year.
As a result, the global warehouse automation market is expected to grow at a compound annual growth rate of 16% between now and 2023, and Symbotic is leading the way.
The company is also expanding beyond its initial focus on general merchandise into new verticals, including apparel, home improvement, and auto parts, while also increasing its footprint internationally.
Beyond selling its groundbreaking warehouse automation system, Symbotic has entered into a joint venture with Softbank called Green Box. The resulting company will install Symbotic systems in warehouses, offering third-party customers a "warehouse-as-a-service" option, providing the company with another avenue for growth.
Blockbuster results
Symbotic's innovative solutions are winning rave reviews from customers, who are lining up to get on board. The company's results help illustrate the demand. In Symbotic's fiscal 2024 first quarter (ended Dec. 30, 2023), revenue of $368 million grew 79% year over year, resulting in the company's second consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). At the same time, it reduced its loss per share to $0.02, an improvement of 75%. Management noted that as the number of systems deployed increases, so too will the company's scale and leverage, which will lead to increasing profitability.
Management expects the company's impressive growth to continue. Symbotic is forecasting second-quarter revenue of $410 million at the midpoint of its guidance, which would represent growth of 54% year over year. Furthermore, Symbotic has a backlog of $23.2 billion, which helps illustrate the strong and growing demand.
Symbotic is chasing a vast opportunity, with a total addressable market (TAM) of $432 billion, as well as an incremental opportunity of $500 billion for its warehouse-as-a-service offering.
A compelling opportunity
Symbotic stock has been growing like wildfire, up 154% over the past year (as of this writing). Despite its meteoric rise, the stock still trades for less than 2 times next year's sales -- the very definition of an affordable stock.
The extremely reasonable price, strong and growing demand for its system, and the secular tailwinds of both online retail and AI illustrate why Symbotic is ready to ride the wave of this once-in-a-generation opportunity.
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Danny Vena has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft, Target, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
