Barclays forecasts the physical AI market, encompassing intelligent systems embedded in machines, could surge to $500 billion-$1.4 trillion by 2035, marking a significant shift from software-based tools to automated physical work. The bank identifies four pillars driving this growth: advanced computing 'brains', mechanical 'brawn', battery breakthroughs, and enabling companies. Autonomous vehicles are expected to be the primary growth engine, potentially contributing $550 billion alone, followed by drones, factory automation, and eventually humanoid robots. Barclays maps nearly 200 public companies across the value chain, expanding opportunities beyond tech firms to include automakers and industrial groups. China currently leads adoption, accounting for over 85% of new humanoid robot installations in 2025 and roughly 55% of global industrial robot units in 2024, with growth concentrated in China and the US. The market's trajectory will vary, with autonomous vehicles seen as most mature due to existing supply chains and data sets.

This projection underscores the transformative potential of integrating AI directly into physical systems for execution in factories, transport, and logistics, aiming to unlock significant productivity gains across the real economy. Barclays' analysis highlights the critical role of hardware advancements and ecosystem enablers alongside software, suggesting a broader opportunity set for traditional industrial sectors beyond pure tech companies. The forecast positions physical AI as a major future growth area, contingent on overcoming challenges like humanoid robot scaling hurdles related to data, hardware, and power.

Why it matters: Investors and businesses should monitor the progress of key enablers and hardware manufacturers, particularly in China and the US, as this shift could redefine manufacturing, logistics, and transportation sectors, demanding new skills and capital allocation strategies.