Japanese automaker Toyota's (TM) plans to invest $1 billion in developing artificial intelligence and robotics comes amid reduced costs and increased demand for the technologies.

Demand for robots have surged at a compound annual growth rate of 17 percent since 2010, according to Bank of America Merrill Lynch. Last year, sales hit $10.7 billion, with 229,000 robots sold, up 29 percent from the year before. The global robotics market is expected to reach $152.7 billion by 2020.

"We are seeing the earliest cognitive stages of human and machine development, where robots are able to collect large amounts of data, analyze it and make optimum decisions, and potentially learn from past interactions," said the Wall Street firm in a note. "Looking out to the future, we are likely to see the evolution of intelligent machines that can sense and understand human emotion and also show adaptability to their surroundings, rendering them increasingly autonomous."

Toyota plans to open its research business early next year at a facility in Silicon Valley, near Stanford University, along with an East Coast office near the Massachusetts Institute of Technology in Cambridge.

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The automaker's interest in robotics and artificial intelligence isn't limited to driverless cars. A robot the company unveiled earlier this year that looks like R2D2 of "Star Wars" fame can assist the sick and elderly. Another machine with a human-like appearance can converse with people and play a musical instrument.

These days much of media's attention on the nascent technologies is focused on cars that operate independently of human drivers. Google (GOOG) and Apple (AAPL) are reportedly keen on capitalizing on automated cars, as are automakers.

"There is still a need for considerable research to be done before this technology becomes commonplace in the market," said Martial Hebert, director of Carnegie Mellon's Robotics Institute, adding he expects additional companies to expand in the market.

Robots are getting cheaper. For instance, BofA notes that an advanced robotic welder costs about $133,000 in 2014, down 27 percent from $182,000 in 2005. Prices are expected to continue to drop another 22 percent over the next 10 years, as manufacturers lower costs through economies of scale.

Performance also is improving. For $100,000 a company can buy a system that can perform twice the work for the same price as a decade ago, BofA said.

There's also plenty of room for growth, BofA found, with just 10 percent of manufacturing tasks performed around the world automated, a figure expected to rise to 45 percent in 10 years for sectors such as technology, electrical equipment and machinery.