Augmented Reality vs Virtual Reality
The history of technology—much like the history of everything else—is selective. It is a story told by winners. So when forecasting the “augmented reality vs virtual reality” debate, try to imagine the next 10 years.
Picture this fight between competing technologies as if it were already concluded. You are living in 2027, ten years older than today. What has changed in the world around you?
Does everyone own a virtual reality headset? Is investing in virtual reality stocks remembered as the best decision of the decade? Or will augmented reality have won this fight?
This process helps me think clearly about tech investing. Otherwise it’s so easy to get sucked into the public relations vortex of Silicon Valley. The California-hype machine is always running at 110%.
“Our proprietary technology is changing the world!”
“What does it do?”
“It uses geo-tagging software to overlay images with location specific filters!”
“If you’re taking selfies at a Yankees game, it makes you look like you’re wearing a Yankees jersey. Or when you’re taking pictures on St. Patrick’s Day, it’ll tinge the whole image with green!”
“You’re kidding, right?”
Silicon Valley is overrun with these kinds of ideas. Small ideas. The kids working at these companies have high-powered brains and impressive coding skills. But very few know how to apply them to a big problem. Most lack direction and experience.
So how do we separate the wheat from the chaff?
My first step is what I’ve already described. I visualize myself ten years in the future, far from the fads of today. I want to think about what technology is intrinsic enough to survive the decade.
Think about it this way: in 2005, the “iPhone” was fairly new. But it was also pretty easy to imagine it being relevant in 2015, because the iPhone was more than just “cool.” It was essential.
As a result, AAPL stock skyrocketed 2,434% between 2005 and 2015!
Chart courtesy of StockCharts.com
Having what later became a portable computer in your pocket was a game changer. It brought to life the power of the Internet, in a way that none of us imagined, and it had staying power. That’s the kind of groundbreaking stuff we need to replicate Apple stock.
A lot of people think virtual reality is next in line. We agree.
That said, augmented reality could be even bigger. We’ve compiled an augmented stocks list that could help you get rich off this trend. But before we get too deep into the weeds, let’s backtrack for a second. What is augmented reality?
What Is Augmented Reality?
Augmented reality imposes digital graphics over a user’s perspective of the world. Which is to say that the user can see holographic visuals cast through a piece of glass. Most often, this experience occurs with the use of an augmented reality headset.
But augmented reality has many more possibilities.
For instance, certain automakers (you might be surprised by which ones) are enabling their windshields with augmented reality. Have you ever seen the inside of an “F-16” cockpit? Because that’s what it would look like.
You would see digitally-cast lines on the road, a holographic speedometer, and who knows what else.
Some manufacturers want to put AR technology in houses, buildings, windows, and mirrors.
It has the potential to eliminate smartphones, and make millionaires in the process. Our pocket devices could go the way of the stone age if AR manufacturers play their cards right. This is a once-in-a-lifetime opportunity for them to take our technology experience to the next level.
It’s even bigger than VR, because you can walk around with AR glasses on all the time. You won’t be walking into walls, because augmented reality integrates with the real world. Virtual reality does not.
In order for users to fully appreciate the immersive environment that VR offers, they need to surrender their senses. The headset completely blocks your vision, the headphones your hearing.
You are essentially deaf and blind to the world around you. This is what makes VR so compelling to video game fans, but limits virtual reality stocks over the long haul.
How to Invest in Augmented Reality?
Since augmented reality stocks are still fairly new, some of the rising stars are still in private hands. But here’s the part most investors don’t know: There are indirect ways to invest in those private companies. I call them “Shadow Bets.”
Let me explain.
Do you remember when Verizon Communications Inc. (NYSE:VZ) agreed to buy Yahoo! Inc. (NASDAQ:YHOO)? Here’s the thing: It wasn’t buying all of Yahoo.
Verizon was only buying a small portion of Yahoo; the “core assets.” The largest part of Yahoo—worth almost 6x as much as the core assets—wasn’t up for sale. It was spun off as a separate asset called Altaba Inc.
Altaba is basically Yahoo’s investment into Alibaba Group Holding Ltd (NYSE:BABA).
Yahoo bought 15% of Alibaba when it was a startup. Eventually CEO Jack Ma turned it into a massive corporation, breaking records with its enormous IPO. The value of Yahoo’s shares in Alibaba surged 2,900% from $1.0 billion to $30.0 billion!
This growth in Alibaba’s valuation was the only thing that kept Yahoo stock afloat. In other words, Yahoo stock was tracking BABA stock, moving alongside it. Like a shadow.
Hence, the name “Shadow Bets.”
We’ve compiled a small augmented reality stocks list below. Some are only accessible through shadow bets, in which case the shadow companies will be listed as well. At least one of them is publicly traded. This stock is relatively unknown, but its upside potential is huge.
Best Augmented Reality Stocks 2017
A lot of investors look puzzled when I mention Magic Leap. Most have never heard the name before. This is probably because Magic Leap has never released a product.
But don’t let that lull you into a false sense of security.
Magic Leap’s founders built their headquarters in Florida instead Silicon Valley. Why? Because they wanted absolute secrecy. Rumor has it they constructed the most advanced augmented reality headset in existence. It’s apparently light years ahead of the competition.
One industry insider who went for a demonstration said, “Magic Leap is one of only a handful of genuine ‘holy sh** I can’t believe I’m seeing this’ moments I’ve had as an adult. Previous was iPhone.” (Source: “Twitter post,” @BenedictEvans, December 8, 2016.)
Previous was the iPhone. The guy who said that, Benedict Evans, put his money where his mouth was. His firm invested heavily into Magic Leap. So did Google and Alibaba.
1. Alibaba Group Holding Ltd. (NYSE:BABA)
The “Shadow Bets” come full circle. Alibaba was financed by Yahoo; now it’s doing its part to help the next generation of startups. It led a $793.5-million Series C funding round for Magic Leap. So I guess we know what side of the AR vs VR debate they are on.
There were 9 participants in that investing round, but Alibaba was the lead. It poured tons of money in Magic Leap, hoping that it would return a fountain of wealth. I believe its patience will be rewarded when Magic Leap brings its augmented reality headset to market.
As it happens, BABA stock is doing fine on its own. The share price is up more than 73% over the last 18 months. But those gains are puny compared to Alibaba’s untapped potential.
Chart courtesy of StockCharts.com
It all comes down to the potential of Magic Leap. If augmented reality lives up to the hype, Alibaba’s stake would shoot through the roof, dragging its share price through along for the ride.
Don’t forget that Alibaba is a gateway to China. Most American businesses (if not all) need a Chinese partner to access the country’s 1.7 billion consumers. Alibaba’s investment gives Magic Leap a head start in China. Without Alibaba, it’d be lost in a bureaucratic quagmire.
2. Alphabet Inc (NASDAQ:GOOG, GOOGL)
Alibaba wasn’t the first giant to grab a piece of Magic Leap. Google parent Alphabet Inc (NASDAQ:GOOG) beat it to the punch by leading a Series B funding round worth $542.0 million.
This shouldn’t come as a surprise. Alphabet is one of the most voracious venture capital players outside of Sand Hill road. It literally has a venture capital arm called “Google Ventures.”
GV has more than 300 investments in life science, healthcare, artificial intelligence, robotics, transportation, cybersecurity, and agriculture. Not all of these investments will work out. But all Google needs is for one or two of them to go public.
Magic Leap might be the one. As I’ve said before, in the AR vs VR battle, I’m betting on AR. And Magic Leap is at the forefront of this technological trend. The stage is set for augmented reality stocks in 2017, so don’t be surprised if Google stock jumps by triple-digits. Investors are already cluing in to Google’s phenomenal investments in emerging technologies.
For instance, the market has been slowly (but surely) pricing in the potential of Google’s driverless car unit. This progression could accelerate once Magic Leap comes to market.
Chart courtesy of StockCharts.com
3. Himax Technologies, Inc. (NASDAQ:HIMX)
The final company on our augmented stocks list is Himax Technologies, Inc. (ADR) (NASDAQ:HIMX). This firm manufactures semiconductor chips that are used in augmented reality applications, and it’s got a long line of customers.
LG, Sony, Sharp, Samsung. All of them place orders with Himax, because augmented reality is at a tipping point. AR is on the cusp of mainstream success. This becomes absolutely clear if you look further down the list of Himax’s clients. There’s one name that stands out.
General Motors Company (NYSE:GM).
Remember when I said certain automakers are using augmented reality to digitize their windshields? You probably thought that was a reference to Tesla Inc (NASDAQ:TSLA). But the big players like GM are rushing to keep up with technological progress. They are embracing the future.
And HIMX stock shareholders are getting rich. Just look at the share price—it bounced up 54.9% in the past month.
Chart courtesy of StockCharts.com
If this essay was a bit sprawling for you, let me pull the various threads together.
- Augmented reality wins the AR vs VR battle.
- A lot of big tech companies have invested in augmented reality startups.
- You can make “Shadow Bets” on AR by investing in the big tech stocks.