What is physical AI, and how can you invest in it?

Humanoid robot sweeping the floor in a modern, high-end kitchen representing physical AI — (Image credit: mikkelwilliam via Getty Images)

One of the major headlines when Tesla announced its Q4 results in January was the surprise announcement that it would wind down production of two of its flagship car products, in order to free up more resources to produce robots.

“We are going to take the Model S and X production space in our Fremont factory and convert that into an Optimus factory,” said Tesla’s CEO Elon Musk in a call with industry analysts following the earnings release. “That is slightly sad, but it is time to bring the S and X programs to an end and shift to an autonomous future.”

This underscored not only a strategic pivot that Tesla (NASDAQ:TSLA) has been envisaging for years, especially since the launch of its robotaxi in Austin, Texas last year, but the rapid emergence within the tech industry of what is increasingly being dubbed ‘physical artificial intelligence (AI)’.

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“Physical AI is not a single industry but a fast-emerging ecosystem where intelligence is being embedded into machines that operate in the real economy,” said Pierre Debru, head of research, Europe at asset manager WisdomTree.

A person dressed in a Tesla Optimus humanoid robot costume poses next to the newly released Tesla Model 3 at the Tesla showroom in Yeouido, Seoul, on January 31, 2026 — Tesla views physical AI, like self-driving cars and humanoid Optimus robots, as the future of its business.

Humanoid robots like Tesla’s Optimus, or the Walker S2 (an industrial humanoid robot that knows when its own battery is running out of charge and can replace it itself autonomously) from Chinese rival Ubtech Robotics (HK:9880), mark an eye-catching evolution from earlier forms of robot which, while undoubtedly valuable in factory automation, don’t quite step into the realms of science fiction.

Developments in physical AI

Self-driving cars are one of the most tangible aspects of physical AI, particularly for residents of cities like Austin or Los Angeles where they already roam the roads.

But self-driving cars could become a reality in the UK too by the end of the year. The Automated Vehicles Act means that automated vehicles will be legally permitted on UK roads this year.

Waymo, Alphabet’s (NASDAQ:GOOGL) self-driving car arm, is launching a pilot service in April.

Another much-vaunted example of physical AI in practice is the increasing efficacy of robotic surgeons.

Tools like Da Vinci, from Intuitive Surgical (NASDAQ:ISRG), enable surgeons to perform robot-assisted operations with greater precision, and potentially remotely. Advances in haptic technology mean that the latest generation of the Da Vinci robot can sense the amount of force being applied to tissue during surgery, effectively simulating a human surgeon’s sense of touch.

A surgeon during a stomach operation with the Da Vinci robot in one of the remodeled operating rooms at the Hospital de Sant Pau, on December 2, 2025, in Barcelona, Spain. — Robot-assisted surgery, like that possible with Intuitive Surgical’s Da Vinci robot, is another example of physical AI in practice.

According to Intuitive Surgical, over 20 million people have now had surgery performed with the help of Da Vinci robots.

How to invest in physical AI

If you’re looking to invest in physical AI, it pays to consider the entire ecosystem as well as the specialist companies that have been mentioned in this article.

Nvidia’s (NASDAQ:NVDA) CEO Jensen Huang could be argued to have popularised the phrase ‘physical AI’ and Nvidia’s Cosmos is one of the leading platforms for physical AI, so it is a good place to start as a ‘picks and shovels’ play.

Similarly, the machine learning systems that enable physical AI to improve through experience are developed by some of big tech’s other major players. Alphabet’s Gemini, for example, is the large language model underpinning the next generation of Atlas robots from Boston Dynamics.

Alphabet is also a decent AI play given its ownership of self-driving car company Waymo.

You might want to invest in physical AI via an exchange-traded fund (ETF), as this will give you diversified exposure to companies in the industry.

On 19 February, WisdomTree launched the Physical AI, Humanoids and Drones UCITS ETF (LON:PAIG). It is Europe’s first ETF to focus specifically on physical AI. Top holdings include Ubtech, South Korean robotics firm Rainbow Robotics (KOSDAQ:277810) and Nvidia.

While PAIG is the first pure-play physical AI ETF in Europe, there are other pre-existing options with a similar if slightly broader focus. The ARK Artificial Intelligence & Robotics UCITS ETF (LON:ARCI) holds some non-physical AI companies but also has a significant exposure to physical AI and robotics companies like Tesla and Teradyne (NASDAQ:TER).

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Dan is a financial journalist who, prior to joining MoneyWeek, spent five years writing for OPTO, an investment magazine focused on growth and technology stocks, ETFs and thematic investing.

Before becoming a writer, Dan spent six years working in talent acquisition in the tech sector, including for credit scoring start-up ClearScore where he first developed an interest in personal finance.

Dan studied Social Anthropology and Management at Sidney Sussex College and the Judge Business School, Cambridge University. Outside finance, he also enjoys travel writing, and has edited two published travel books.