Nvidia’s CEO sees Physical AI booming: here’s one of its big opportunities

• Physical AI is poised to be the next big thing in AI, with a “ChatGPT moment” just around the corner, according to Nvidia’s founder and CEO
• And the rise of so-called embodied AI means two things: self-driving cars and humanoid robots
• Harmonic Drive System is the world’s leading manufacturer of high-end harmonic drives – essential equipment for high-spec humanoid robots.

NVIDIA Corp (NASDAQ:NVDA) founder and CEO Jensen Huang – arguably the leading voice in the AI revolution – says physical AI is where the industry is heading. During his keynote talk at the Consumer Electronics Show (CES) recently, he declared that a “ChatGPT moment” is right around the corner for robotics. If he’s right (and he likely is), that’s huge: groundbreaking technologies like this don’t just change industries – they also open up exciting investing opportunities.

I wrote about physical AI last year – specifically about humanoid robots. And now, with the topic firmly back in the spotlight, this seems like a great time to take a fresh look.

So, what are humanoids, anyway?

Humanoid robots are basically AI with a body. They’ve got sensors, cameras, actuators, harmonic drives, and batteries all packed around a person-shaped robot frame. These physical AI machines are equipped with motion control systems that take instructions from an AI chip, allowing them to move their joints to get around. And, thanks to some AI breakthroughs, they’re not just mobile – they’re increasingly capable of certain problem-solving tasks.

Right now, this tech is reaching a tipping point, as AI accelerates and fine-tunes the process of simulating the physical world. That’s not just Huang’s view: OpenAI’s CEO Sam Altman has said the same thing, writing in a blog recently that the first AI agents are likely to join the workforce this year, materially changing the output of companies.

Now, Nvidia aims to become a core enabler of physical AI – from autonomous vehicles to humanoids – by significantly shortening the instruction times of AI models and allowing imitation training to occur without physical human demonstration.

Autonomous vehicles will be the first multitrillion-dollar robotics industry, Huang told the CES audience on Monday, not long after Toyota Motor Corp ADR (NYSE:TM) announced it would build its next generation of autonomous vehicles on Nvidia’s hardware. And that suggests the humanoids might come along more slowly. And even though it may still be early days for humanoids, and contributions to sales and profits are admittedly minimal as most companies are still only at the prototype stage, that’s not likely to stop investors from trying to identify the future winners in this trend. After all, successful investing is about figuring out what the world will look like in the future, and which companies will benefit from it the most.

So, where are the opportunities in this trend?

Humanoid manufacturing is predicted to grow from around 3,500 robots in 2024 to 1.4 million by 2035. By then, the industry’s market size is expected to top $38 billion – on its way to hitting the $3 trillion mark. I highlighted some potential winners from the increased production of humanoids last year.

Without a doubt, Tesla Inc (NASDAQ:TSLA) has been the standout winner in big-cap stocks over the past few months. And there are a few reasons for that: one was the fact that the EV maker’s Optimus humanoid is expected to become a global leader, – but others included the company’s progress in building fully autonomous, self-driving vehicles and its CEO’s new influence in Washington.

So Tesla’s stock has zipped 85% higher since mid-October – despite auto deliveries coming in below expectations in December. Still with its valuation an a remarkably high 100x price-to-earnings (P/E) ratio based on December 2026 earnings – it's a great example of how unbound optimism, or “animal spirits”, can send a stock to unexpectedly lofty heights.

While Nvidia will likely be core to humanoids’ AI decision-making (the brains, if you will), there’s the still the matter of the body. And to create a figure that performs human-like motions, you need actuators. Those devices – made up of screws, harmonic drives, motors, sensors, bearings, and encoders – are the robotic equivalent of joints and muscles.

Harmonic Drive Systems makes high-end harmonic drives – and a high-spec two-armed robot could need as many as 44 of those. It’s no wonder it’s estimated that humanoid demand for global harmonic drives will surge to $2.5 billion by 2030, so there’s significant upside potential for the company’s profits.

The firm has suffered a sharp decline in its sales and profits over the past few years – the result of weaker automotive and industrial demand and the fact that some customers were sitting on a stockpile of inventory. Harmonic Drive’s latest quarterly results confirmed that. The company said in November that it planned to increase prices across its product range and put some new cost-cutting measures in place, but its share price nonetheless continued to fall – dropping from 2,700 Japanese yen ($17), to around 1,800 yen ($12). That’s down a painful 80% from its highs in 2020.

Interestingly, that November selloff proved short-lived: its share price doubled from its lows to around 3,700 yen ($23). That rally happened as trading volume gathered steam – and that’s usually a good sign as to the sustainability of the stock move. But you may still want to be cautious: sharp moves also reflect how volatile smaller stocks can be.

Harmonic Drive five-year price and volume chart. Source Koyfin. Past performance is not a guide to future performance.

And although no official “new news” has been released by the company of late, investors have started to focus on humanoid potential. The company forecasts only 2.8 billion yen ($17 million) in sales for humanoid robot applications in the fiscal year ending in March 2025. That's not a lot – but it’s from zero the year before. And it’s happening, according to the company, because of three things.

One specific, unnamed customer – a major robot maker that’s conducting trials in hopes of moving into mass production – has placed most of the firm’s orders this year.

A rush of small orders on a several-unit basis have come from various companies that are attempting prototype manufacturing.

The firm has won several bids against its competitors, helped by the performance of its products.

Harmonic Drive Systems has a reputation for producing the world’s best high-spec harmonic drives, and that’s given it a market-leading position at the high end of this niche market. And sure, there’s no guarantee that the early interest it’s attracting will lead to sustained, mass production, but if humanoid production expands, as Huang has forecast, Harmonic Drive Systems is likely to see a rush of orders. And since rising orders are a leading indicator for sales and profits, that’s likely to drive this company’s stock higher.

Russell Burns is an analyst at finimize.

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