Nanalyze

Investing in Virtual Reality Stocks – Is it Possible?

Out of the 30 emerging technologies we write about here at Nanalyze, very few have lots of pure-play stocks for retail investors. By definition, emerging technologies aren’t yet mature and therefore the companies working on them will typically be in the very early stages. This is also the case with virtual reality (VR). If you haven’t tried a virtual reality experience yet, you should. It will blow your mind and you’ll easily see how this is expected to become a dominant technology in the coming years.

If you’re like us, the next question you’ll have is “how can I invest in virtual reality” and you might Google “virtual reality stocks” and see what comes up. Unfortunately, you will find lots of articles with clever titles like “3 Best Tech Stocks to Buy for REAL Virtual Reality Profits” which give all kinds of mediocre advice like “just buy Facebook” which is akin to the whole “invest in everything with Google” fallacy we’ve pointed out before. When we think about investing in virtual reality, the following areas come to mind:

  • The companies that manufacture the headsets
  • The powerful and expensive video graphics cards we need to use VR headsets
  • The VR content that we use (games, experiences, and real-time)
  • Any picks and shovels plays like MEMS components or lenses

While there is no shortage of exciting VR startups out there, as retail investors we’re interested in publicly traded stocks that give us direct and indirect exposure to VR technology. Let’s take a closer look at each of these areas.

Investing in Virtual Reality Headsets

The main manufacturers of headsets right now are as follows:

  • Google
  • Samsung
  • Facebook
  • HTC Corp

Of these stocks listed above, the only one that gives you any meaningful exposure would be HTC Corp which we covered before. As for the others, they’re just involved in way too many other things for virtual reality to have an impact to the bottom line. Perhaps one of the many startups developing VR headsets will have an IPO but until then, you’re pretty much just limited to buying shares in HTC Corp (TPE:2498). You’ll have to open an account with Interactive Brokers to trade those shares on the Taiwan Stock Exchange.

Investing in Graphics Cards (Also called GPUs)

This category is pretty simple as you have two main players right now – AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). We wrote an article on NVDA recently and talked about how it was the single best performing stock on the NASDAQ in 2016 returning a staggering +224% and resulting in a market cap of nearly $54 billion.

Today, shares are down -9% on “downgrades” from pundits who have a worse track record than casinos. If you were going to pull the trigger on some shares, now is the time to take a look. Use “dollar cost averaging” which means buy some of your position each month so you can avoid trying to time the market. You should also not just put all your eggs in one basket. Pick up some shares of AMD as well, though you may be surprised to hear that they actually beat NVDA in 2016 and were the 4th best performing NASDAQ stock returning +295%.  And get this. They’re actually up over +620% in the past year. 

This isn’t just about investing in any old graphics card companies. It’s about buying stock in the two companies that dominate the market share of video graphics cards for virtual reality. If you believe in the long term growth potential for virtual reality, then you’re going to want to invest with a 10-20-year time horizon. We can’t just say “they’re overpriced” and that we’ll “wait a few months” until they hit some mythical target price we create out of thin air. Again, using dollar cost averaging is key here. You can also setup a motif and buy them together to save on transaction costs.

Investing in Virtual Reality Content

Virtual reality content is often referred to as “virtual reality experiences” because we can’t exactly just start making all our movies in VR going forward. You need to use special 360 degree cameras in order to capture everything around you. Think about how tough that is to do on a movie set. What will be easy enough to do though is to record concerts or sporting events in VR, and eventually even in real-time VR. A company we highlighted before called NextVR has partnered with Live Nation (NYSE:LYV) to record live events in VR. With over $7 billion in revenues last year, it will be a while before VR can move the needle for LYV if it does. Most of the content producers like NextVR are private at the moment, and we highlighted 6 of them for you to keep an eye on.

Another way to play this is by investing in video game manufacturers, though the question is “will virtual reality gaming, a medium that requires a great deal more work, command a premium and/or attract new customers“? That’s anyone’s guess, but if you believe the hype around 80% of all jobs going to robots and AI, WTF else are most young people going to do with all that spare time? Activision (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA) are two big publicly traded video game manufacturers you can throw into your motif to play this theme.

Investing in Picks and Shovels

Among all the research we performed on what the pundits recommend, a few names came up as possible plays on VR. While GoPro (NASDAQ:GPRO) has lost -73% of its value since IPO, they’re trying to make a comeback by selling two virtual reality cameras they built with Google (the Omni and the Odyssey) both of which to be plastic casings stuffed with lots of GoPro cameras. Hopefully that’s enough to buck the following slide in revenues and profitability:

Lastly, one company mentioned by Goldman Sachs was another Taiwanese company called Largan Precision (TPE:3008) which is “likely to become the top producer of miniature lenses for VR/AR companies”. Sounds like an interesting play until the hardware changes and we’re all wearing VR/AR contact lenses. If you want to pick up some shares of Largan Precision, you’ll have to open an account with Interactive Brokers.

Creating a Nanalyze Virtual Reality Stocks motif

Now at this point, we can add all the “virtual reality stocks” we’ve discussed to a motif we can easily create which looks something like this:

You can adjust the weights any way you like then trade the above basket of stocks for just $9.95 a trade. If you want to go ahead and pick up what all the pundits are putting down, just round your motif off with some shares of Facebook or Google. If you share it with your friends and convince them to buy it, Motif will even give you a kickback.

To conclude, there just aren’t that many opportunities for retail investors to get exposure to virtual reality technology yet. We think owning shares of NVDA is a no-brainer because you also get exposure to the growth of artificial intelligence (AI) hardware as an added bonus. Investing in a few big gaming companies like EA and ATVI probably isn’t a bad idea since after the robots steal all our jobs, we’re going to spend the majority of time getting our self actualization from virtual personas. It remains to be seen if HTC can turn around their business with Vive, but now would be the time to invest if you think that’s likely.

Did we miss any “virtual reality stocks” that should be on this list? Drop us a line in the comments below and let us know what you think.

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