Robots Need Rare Earths: How to Invest

Broadly speaking, when the average investor thinks about the term artificial intelligence, the first thing that comes to mind is usually digital, such as a chatbot or large language model (LLM).Key Takeaways: Physical AI, such as autonomous factory rovers and surgical robots, are becoming an increasingly relevant part of the AI opportunity set, according to a recent Sprott report. Sprott’s Kenny Zhu, CFA, noted that rare earths have a critical role to play in manufacturing these robots. Those seeking to gain access to rare earths companies domiciled outside of China may wish to consider the Sprott Rare Earths Ex-China ETF (REXC). However, artificial intelligence is not solely confined to algorithms and pixels. AI growth and expansion is happening on a wider frontier, which includes the physical world. Some may be wondering, what does physical AI refer to, exactly? While the term is broad, physical AI’s key applications as of late lie within autonomous rovers in warehouses, manipulator arms on conveyor belts, surgical robots, and even humanoid robots. Kenny Zhu, CFA, director, research & investment strategy at Sprott Asset Management, recently examined physical AI in a Sprott report. In the report, he evaluated the growth of physical AI and the role rare earths play in that subsequent build-out. As Zhu explained, physical AI will become an increasingly relevant part of the economy in the years to come. He cited projections from Morgan Stanley, in which annual robot sales are estimated to increase from about 29 million units in 2026 to roughly 1.4 billion by 2050.Rising Robot Demand Creates Need for Rare EarthsShould physical AI sales escalate in the coming years, the materials and elements required to manufacture these robots or systems could see higher demand. This includes a number of rare earth elements. As Zhu noted, rare earths such as neodymium, praseodymium, and terbium are all used in the construction of robotic magnets. See More: Rare Earths: The Hidden Engine of Modern Robotics “As technologies become more sophisticated and performance requirements grow more complex, the importance of rare earths increases in parallel,” Zhu added. “The unique characteristics of REEs help engineers overcome physical limitations related to size, weight, power consumption and reliability, enabling systems to deliver greater functionality in increasingly compact and demanding environments.” Investors looking to capitalize on the potential growth within physical AI and robotics may want to gain focused exposure to rare earth companies. After all, rare earth miners could see demand strengthen as the need for physical AI steadily grows. The Sprott Rare Earths Ex-China ETF (REXC) could help advisors and investors seeking to strengthen their rare earths exposure. REXC invests in companies engaged in the rare earths industry that are domiciled outside of China. This approach could be particularly advantageous, given how many countries are looking to de-couple from China’s dominant position in the rare earths industry. For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Content Hub.DisclosuresAn investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Prospectus, which contains this and other information, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing, which can also be found by clicking one of the links below. Past performance is no guarantee of future results. One cannot invest directly in an index. Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance. Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi. Exchange Traded Funds (ETFs): SETM, LITP, URNM, URNJ, COPP, COPJ, NIKL, SGDM, SGDJ, SLVR, GBUG, METL, and REXC Physical Bullion Funds: PHYS, PSLV, CEF, and SPPP. Gold and precious metals are referred to with terms of art like store of value, safe haven and safe asset. These terms should not be construed to guarantee any form of investment safety. While “safe” assets like gold, Treasuries, money market funds and cash generally do not carry a high risk of loss relative to other asset classes, any asset may lose value, which may involve the complete loss of invested principal.