“Physical AI”: Intelligent Robotics Is Becoming a Key Strategic Technology

Robotics is on the verge of its next major leap forward: With “Physical AI,” the combination of AI and robots is giving rise to a new generation of intelligent systems that can perceive their environment, learn from experience, and make decisions independently. Robots with human-like characteristics—so-called “humanoids”—are emblematic of this trend. A new study by the FERI Cognitive Finance Institute, in collaboration with the Fraunhofer Institute for Manufacturing Engineering and Automation (IPA), examines this technological disruption and its far-reaching impacts on the economy, value chains, and investments. “We are witnessing the beginning of a rapid transformation in robotics that will have enormous consequences worldwide,” explains Dr. Heinz-Werner Rapp, founder and director of the Bad Homburg-based think tank.

Humanoids seem spectacular—but they're just the tip of the iceberg 

Humanoid robots are primarily intended for applications in service, care, or process automation. However, they are merely the most visible manifestation of a much larger trend: The true robotics revolution is taking place deeper in the value chain—in semiconductors, software, sensor technology, AI models, computing infrastructures, and simulation environments. While industrial robotics is already an established mass market and service robotics is expanding rapidly—particularly in logistics and healthcare—humanoid robotics is still in its early stages. “In 2025, a record amount of approximately $6.1 billion in venture capital flowed into humanoid robotics. However, the majority of the money went toward research, as an established mass market is still lacking,” explains Rapp. 

Demographic change and economic pressures are driving automation 

Key drivers of this development include massive advances in AI, sensor technology, and technological integration. However, structural factors also play a role: “In aging societies, demographic change is creating strong pressure to substitute skilled workers and the workforce in general,” says Rapp. Added to this is intensified global competition, particularly from China, which is driven primarily by process efficiency. Current examples include “dark factories,” which produce around the clock with virtually no human intervention. The total cost of ownership for industrial robots is steadily declining—in contrast to rising wages and non-wage labor costs. Rapp explains: “These forces are driving massive investments in automation worldwide. Robotics is thus ultimately becoming an indispensable pillar of societal sovereignty and livelihood security.”

Germany has strong foundations—but has ground to make up in global competition

Against this backdrop, global competition is also intensifying: While China is pursuing a clear strategy to expand its industrial robotics sector, the U.S. is leveraging its strengths in AI software, venture capital, and the platform economy. Europe—and Germany in particular—possesses industrial expertise, specialized know-how, and an excellent research ecosystem, but it must break down bureaucratic barriers and scale up attractive service offerings much more quickly. 

Opportunities for Entrepreneurs and Professional Investors 

The tremendous momentum in the “Physical AI & Robotics” sector promises rapid leaps in development, offering a multitude of specific opportunities. Entrepreneurs and professional investors should closely monitor and continuously evaluate this sector, while also keeping an eye on international competitive dynamics. Currently, however, the risk-reward profile is asymmetrical: Direct investments in individual robotics providers may involve high technological risks. The upstream stages of the value chain appear significantly more robust. Rapp emphasizes: “No matter which specific robot system prevails—suppliers of sensor systems, simulation software, and AI infrastructure will benefit in any case.” 

The study, “AI Meets Robotics: Physical AI, Humanoid Robots, and the Future of Automation”, by the FERI Cognitive Finance Institute was produced in collaboration with experts from the Fraunhofer-Instituts für Produktionstechnik und Automatisierung IPA. The analysis is available in German for download on this page.