RESEARCH | IMPACT SERIES | INNOVATION EDGE
AI gets physical: Innovation meets opportunity
Contributors: Zornitsa Todorova & Carlos Eduardo Garcia Martinez
14 Jan 2026
CHAPTERS
AI-powered robotics is at a tipping point. The market for humanoids is currently valued at $2-3 billion and is projected to surge to $40 billion by 2035 in a base case1, with upside scenarios reaching $200 billion.
The humanoid market is set to grow exponentially by 2035
Capital is already following this potential. Venture capital funding for robotics hit $8.8 billion in Q2 20252, a 15-fold increase since 2017, and valuations for leading startups in the space have seen rapid growth.
This marks a distinct shift from the first wave of AI investment, which was software-driven and dominated by hyperscalers. This next wave will not be solely about software, but will place equal emphasis on hardware, according to our Research analysts. Companies positioned within physical supply chains – especially those manufacturing actuators and precision components – stand to benefit as humanoids transition from prototype to mass adoption.
The "three Bs" of the humanoid supply chain
The humanoid supply chain is built on three core technologies: brains, brawn and batteries. Advances across all three have contributed to the current acceleration point.
- Brains: Breakthroughs in vision and motion systems mean machines can now perceive and reason in unstructured environments.
- Brawn: The mechanical systems that allow robots to replicate human movements account for approximately 50% of the total production expense of a humanoid. As manufacturers scale, the cost of this hardware will be the defining factor in determining economic viability.
- Batteries: Improvements in energy density are beginning to address the power needs of humanoids.
Gains in AI perception and reasoning have paved the way for real world humanoid deployment
Breakthroughs across the ‘three Bs’ have also collapsed production costs of humanoids from $3m to $100,000 per unit3 over the last decade and spurred increased competition. This has made them a more realistic option for commercial applications.
Barclays Brief Ep 15 - Rise of the humanoid robots
Humanoid robotics is nearing an inflection point. Zornitsa Todorova and Patrick Coffey explore how physical AI, demographic shifts and falling costs are accelerating adoption — and what this means for long‑term investors.
Who has the manufacturing edge?
Development of humanoid AI is globally distributed, but regional specialisations are emerging. While the US and Japan remain vital innovation hubs, and China leads in humanoid volume production and deployment, Europe is carving out a distinct edge in advancing the physical capabilities that underpin the second ‘B’: brawn.
Europe, China, the US and Japan produce the majority of high-precision actuators and host these companies’ headquarters
A humanoid is essentially a car in miniature: complex, reliant on multi-tiered supply chains and requiring high-precision components. Partnerships are already forming between robotics firms and carmakers.
Europe’s automotive heritage translates directly to robotic manufacturing. The region has a 34% share of the global supply chain for high-precision components4, and Germany alone accounts for approximately one-third of global actuator supply5. For investors and industrial partners, Europe’s capacity to repurpose automotive expertise for humanoid production represents a significant competitive edge.
Vulnerabilities and opportunities in battery production
Another key component of the physical AI supply chain is batteries. While only accounting for 15% of the production cost of humanoids6, battery capacity remains a key area of development, as humans are comparatively more energy-efficient across most physical activities.
Humans are more energy-efficient than humanoid robots
Energy density improvements are addressing the power needs of humanoids. Lithium-ion battery prices have dropped nearly 8x over the past ten years7, and global energy storage capacity has also increased dramatically. Combined, these have made integrating batteries into humanoids more viable.
As the humanoid market grows, demand for copper, lithium, aluminium, nickel and cobalt (collectively CLANCs) used in battery production will rise. China dominates the supply of these critical minerals, as well as providing over 90% of the magnetic rare earths needed for actuators, creating both strategic vulnerabilities and a significant tailwind of opportunities for established mining companies outside of China.
Humanoid advancement could fill labour gaps
Acute macroeconomic pressures caused by major demographic shifts have also created a greater demand for solutions that can complement human workforces – and therefore for bipedal robots that can operate effectively in a world designed for the human form.
First, populations are ageing rapidly. By 2050, the share of the global population aged 65 and above is projected to rise from 10% to 16%9, surpassing 30% in some regions. Second, talent is concentrating in cities, leaving agricultural and manufacturing sectors exposed to a deepening skills mismatch. Third, there is a growing reluctance among humans to perform jobs that are repetitive, hazardous, or physically demanding.
Advances in humanoid robotics are accelerating defence innovation, with spillover effects driving next-generation technologies. This is creating potential demand for humanoids to work alongside humans in defence production. And with global defence spending projected to hit between $4.4 trillion and $6.6 trillion by 203510, demand for robotics and advanced components is expected to rise.
Humanoids are also poised to enter professions facing the most acute labour shortages. In particular, across agriculture and manufacturing, where workers are ageing faster than the general population, and in healthcare, where demand for nursing personnel is outpacing supply, humanoid robots offer a necessary augmentation to the workforce.
WEF 2026: AI, robotics and the future of work
Zornitsa Todorova, Head of Thematic FICC Research hosted a panel discussion with leading experts exploring how humanoid robots could augment workforces, and what it means for global strategy, regulation and the future of work.
There are industries in which humanoids can add value
It is thanks to improvements in the first ‘B’ (brains) of the physical AI supply chain that humanoid robots are able to fill these labour gaps. As AI models become more sophisticated, they gain the contextual understanding needed to work safely alongside humans and perform human-like functions.
Redefining cost structures
Integrating humanoids into workforces could fundamentally change cost structures. Businesses that spend heavily on OpEx (wages, benefits, compliance, etc.) could move to higher CapEx expenditure on robotics. This shift could strengthen margins and boost valuations, as businesses move from variable labour costs, which typically rise with inflation, to more stable, depreciable assets like robots.
The future of work will be shaped by collaboration between humans and robots. By automating routine or physically demanding tasks, humanoids can help people focus on higher-value activities while maintaining critical oversight. This partnership model addresses demographic challenges, controls costs, and supports service quality.
Sources:
1. AlphaSense, Barclays Research
2. PitchBook, Barclays Research
3. AlphaSense, Company reports
4. UN Comtrade
5. UN Comtrade
6. Barclays Research
7. Bloomberg BNEF
8. US Geological Survey, International Energy Agency (Licence CC BY 4.0)
9. United Nations' World Urbanization Prospects 2025
10. United Nations
Barclays Research contributors
Zornitsa Todorova
Head of Thematic FICC Research
Carlos Eduardo Garcia Martinez
AVP, Thematic Macro team
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