Physical AI and the Defensive Case for Robotics

The convergence of artificial intelligence and physical manufacturing is creating a unique offensive and defensive investment profile for the robotics sector, according to Zeno Mercer, Head of Robotics and AI Research at VettaFi.

• Projects are validating the shift from digital AI to physical manufacturing, aerospace, as well as defense applications.
• Robotics acts as a growth engine for global industry automation while serving as a defensive hedge against labor shortages and geopolitical supply chain reshoring.
• Unlike speculative tech, the sector shows strong fundamentals

A central validation of this thesis is Jeff Bezos’s Project Prometheus, which launched in November 2025. With $6.2 billion in initial funding and a target of $100 billion, the project aims to acquire and transform legacy manufacturing, aerospace, and defense firms through physical AI. Mercer noted that Prometheus has already recruited over 120 specialists from Meta, OpenAI, and DeepMind to apply deep learning to industrial supply chains and material science.

This massive capital commitment validates the core strategy behind automation-focused ETFs like the ROBO Global Robotics and Automation Index ETF (ROBO B). Conversely, the ROBO Global Artificial Intelligence ETF (THNQ B-) focuses on the entire AI value chain, targeting the infrastructure and software powering these autonomous systems.

Mercer highlighted that robotics now functions as both a growth engine and a defensive hedge. On the offensive side, every global industry is becoming a robotics end-market as AI moves from digital screens to physical tasks. Defensively, robotics provides a moat against current macroeconomic shifts.

“You cannot outsource physical labor to a large language model,” Mercer noted. Current geopolitical tensions, including potential tariffs as well as focus on supply chain reshoring, are actually accelerating the demand for domestic automation, he added.

Despite broader market volatility, Mercer pointed out that the underlying fundamentals of the robotics space remain robust. Approximately 93% of ROBO’s underlying index consists of profitable companies, distancing the sector from the more speculative moonshot tech categories. While the broader market faces pressure, legislative support for autonomous systems and defense robotics is driving demand for industrial automation.

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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for THNQ and ROBO, for which it receives an index licensing fee. However, THNQ and ROBO are not issued, sponsored, endorsed, or sold by VettaFi. VettaFi and its affiliates have no obligation or liability in connection with the issuance, administration, marketing, or trading of THNQ and ROBO.