How to Invest in Virtual Reality
Virtual reality (VR) is perhaps the next big thing in the technology sector.
The market for virtual and augmented reality devices is expected to grow more than tenfold over the next five years. According to advisory Digi-Capital, the market might account for $30.0 billion in sales by 2020. Augmented-reality could haul in another $120 billion in sales. (Source: “Augmented/Virtual Reality to hit $150 billion disrupting mobile by 2020,” Digi-Capital, April 2015.)
If those numbers play out, virtual and augmented reality devices could be a bigger market than tablets, 3D printing, and even the “iPhone.” It’s easy to see why industry players want to get into this market quickly and with the right technology.
Although these numbers are impressive, there are few pure-plays on the coming virtual reality gold rush. To help investors stake their claims, I’ve highlighted five examples of companies that are best positioned to profit from the coming surge in virtual reality.
1. Alphabet Inc
The biggest name in virtual reality by virtue of market cap is Google’s parent company, Alphabet Inc (NASDAQ:GOOG).
Google has a low-cost solution that will encourage the widespread distribution of the technology. The solution goes by the name of “Google Cardboard.” It is an open-source virtual reality platform that uses a simple economic cardboard display wrapped around a smartphone. Google Cardboard allows the use of a range of virtual reality applications in games and entertainment.
Google has also invested $542 million in augmented reality with startup Magic Leap. The company’s incredible device, which goes by the same name, inserts realistic holograms into the visual field through augmented reality glasses. It’s the best attempt yet to make the industry’s recent innovations available to ordinary users. (Source: “Here’s the best look yet at what Google-backed Magic Leap is building,” Business Insider, October 20, 2015.)
This may seem small by Google standards, but that’s also why the technology should appeal so much to investors. The small investment can generate huge gains. The virtual reality market has tremendous potential and now is the time to invest in the technology, while the market is at the premature stage. Right now, just one percent of all PCs can interact with products designed to provide a worthwhile VR experience but that’s sure to change. (Source: “Less than 1 percent of PCs will be able to support Virtual Reality (VR) headsets,” Tech 2, January 5, 2016.)
The way Google stock can grow from virtual reality is that the company has the ability to take low-cost technology to a much higher market level with bigger premiums.
2. Facebook Inc
I wouldn’t be able to talk about virtual reality without mentioning the efforts Facebook Inc (NASDAQ:FB) is making in this regard.
In 2014, Facebook bought startup Oculus VR, LLC, which created the “Oculus Rift” VR headset, for $2.0 billion. This investment is going to start producing for Facebook now. Ultimately, if the technology takes off, it could be one of the most important factors for Facebook stock. The Oculus Rift virtual reality goggles offer a number of entertainment possibilities.
Users can play interactive video games, explore places from the comfort of their living rooms, or watch movies. Previous attempts at virtual reality in the early 1990s failed because of a substantial delay between the user’s head movement and the device’s response speed—not very quick—that provoked motion sickness in users. The advanced detector of the Oculus Rift movement has reduced or virtually eliminated the delay. (Source: “Oculus Rift review-gasm round-up: The QT on VR,” The Register, March 29, 2016.)
Most analysts see the Oculus Rift as just a platform for video games, but the device’s potential goes well beyond that. CEO Mark Zuckerberg wants virtual reality and Oculus to transform social media itself.
“Virtual reality is going to be the most social platform,” Zuckerberg explained in a recent interview. “Facebook, with Oculus, are committed to this for the long term. We’ve recently created new teams at Facebook to build the next generation of social apps and virtual reality.” (Source: “Mark Zuckerberg Has A Plan To Bring Facebook Users Into Virtual Reality,” Forbes, February 24, 2016.)
3. Apple Inc.
You may have noticed the absence of one notable player, one of the absolute leaders of the tech sector: Apple Inc. (NASDAQ:AAPL).
The fact is that Apple has not made its virtual reality plans clear, but the company is making moves into the space, acquiring small virtual reality players. The best example is PrimeSense, which Apple purchased in 2013 for $345 million. (Source: “Apple buys Israel’s PrimeSense for $345 million: report,” Reuters, November 17, 2016.)
In May 2015, meanwhile, Apple acquired the startup AR Metaio. (Source: “Apple Acquires Augmented Reality Company Metaio,” TechCrunch, May 28, 2015.) Metaio technology has supported the virtual Ikea catalog and the virtual showroom for Ferrari N.V. (NYSE:RACE). In addition, Apple has publicly posted a job listing for a virtual reality developer and has filed a patent for a VR device for the iPhone. (Source: Ibid.) But, Apple has much bigger plans in VR and it’s rumored to have a secret division working on what could be the biggest virtual reality development to date. (Source: “Apple VR Rumors: What We Know So Far About Apple Inc.’s Virtual-Reality Headset Efforts,” International Business Times, March 7, 2016.) Apple can afford to arrive late to the VR party—or any other party for that matter—and still be crowned as the tech’s king.
Two “Picks and Shovels” Companies
Finally, for the last two companies investors should add to their radars, consider that perhaps the best way to invest in the virtual reality gold rush isn’t to invest in the technology itself. Rather, it can be far more profitable to buy the companies “supplying” the boom—the picks and shovels as it were.
Intel Corporation (NASDAQ:INTC) could be a big winner. The company makes graphics processing units (GPU) used in virtual reality devices. In addition, Intel and Razer, a videogame manufacturer, have joined forces to create a virtual reality camera using “RealSense,” a three-dimensional technology developed by Intel to be used in cameras.
GoPro Inc (NASDAQ:GPRO) could be another winner. Last year, GoPro launched the “Odyssey,” a circular assembly of 16 “Hero4 Black” GoPro cameras. At a price of $15,000, the Odyssey is able to create 360-degree videos. It is also optimized for “Jump,” Google’s virtual reality open-source platform. Indeed, GoPro is working with Google to offer software for creating and sharing 360-degree YouTube videos that work with Google Cardboard.
The Bottom Line on Virtual Reality
What is likely is that the virtual reality market will explode by the end of 2016 and early 2017. Startups will come with goggles to compete with Oculus and launch real market wars in the same way that GoPro launched one in the video camera industry.
Then there is the potential of VR itself. It’s not just for gaming. It’s also for movies, shopping, and possibilities we haven’t even thought of yet. Like the radio, television, and the Internet itself, virtual reality is the kind of disruptive technology investors can’t ignore.