Investing in AR/VR Stocks and Companies
After 3D printing, if you were to pick the next emerging tech category based on the amount of complaining per capita of capital invested, it might be augmented and virtual reality. That’s because the promise of merging the digital with the real world in different aspects of our lives is a long way off from materializing. In fairness, the expectations were pretty out of touch with reality. And the timeframe is truly infinitesimally small compared to the commercial introduction of something like 3D printers.
A pop culture historian would probably peg the beginning of the modern AR/VR industry to 2016, when the Oculus Rift virtual reality headset hit the market. That’s about the time that Nanalyze first started covering some of the hottest virtual reality startups that were beginning to emerge. Investors were certainly eager, and 2016 ended with some of the largest funding rounds to VR startups to date. Concurrently, AR suddenly seemed like the biggest opportunity ever, especially thanks to a startup called Magic Leap (more on that below).
But even by the end of 2017, we were already writing about how VR was struggling to go mainstream. Funding into AR/VR hardware startups by the end of 2018 wasn’t nearly as brisk as it had been a couple of years earlier. Globally, AR/VR is still working hard to gain product traction. The United States and China seem to be dominating, but don’t count out the Startup Nation, with Israel home to quite a few AR/VR startups.
The relative immaturity of the market means there are fewer opportunities for the retail investor, which we discuss below. Let’s first play a bit with terminology and the different kinds of technology on offer.
What is AR/VR?
Augmented reality and virtual reality are two sides of a multi-faceted coin. In fact, the category has been extended to what is called extended reality (XR), apparently a catch-all term for tech that merges the digital and real worlds in some sort of computing hardware interface that looks like it was made for a sci-fi movie in the 1980s.
You’ll come across three main types of XR technologies but keep in mind that the lines continue to blur between what is real and what is a fancy trick of the light.
- Virtual reality is a completely digital environment that you are immersed in.
- Augmented reality is where your view of reality is “augmented” with digital additions.
- In mixed reality, digital objects appear within the natural world.
Many companies are working solely in one category but others are developing solutions that are truly mixed and matched to the problem at hand.
If hardware is hard, as the saying goes, then it must really suck if you’re a company doing hardware for VR/AR applications. Just like we first believed that everyone would have a desktop 3D printer in his or her home, we assumed AR/VR devices would be as ubiquitous as a PlayStation or DVD player back in the day. Instead, VR has labored to find a widespread consumer audience willing to invest in what is still a somewhat awkward technology with limited content. Meanwhile, mobile-based AR applications on our smartphones mean that AR hardware faces an uphill battle for relevance. The smart money is generally headed into business solutions.
Any discussion of AR/VR hardware has to begin with headsets. And at the top of the heap when it comes to the best VR headsets to emerge over the last few years is Oculus Rift, which first showed us just how mind-blowing virtual reality could be. The Facebook acquisition has certainly seen plenty of competition emerge with new virtual reality headsets entering the market all the time.
There are a few recognizable names among the many augmented and mixed reality headset manufacturers, beginning with the startup we love to hate, Magic Leap, which seemed capable of challenging tech giants like Google and its smart Glass platform.
To remain relevant and avoid blinking out of existence like AR headset pioneer Osterhout Design Group, Magic Leap has made a hard pivot into enterprise applications (more on this topic below) for its smart glasses platform that projects digital objects onto the real world. The tech unicorn enters an increasingly crowded market with AR/VR hardware players like RealWear, which has engendered its own ecosystem of apps for warehouse workers, inspectors, technicians, and more. And then there are heavyweights like Microsoft and its HoloLens, which has applications in research, education, and more.
AR/VR Headset Suppliers
Not every player in the AR/VR headset space is a finished goods manufacturer. Take Israeli startup Lumus, a 20-year-old company that originally developed its light-guide optical element technology – a device that projects light through a transparent lens – for fighter pilots and other military personnel. Like Lumus, DigiLens is another AR/VR optics supplier that originally developed its holographic waveguide display technology for heads up display systems on military aircraft. The tech is different from that used to create actual holograms, which project 3D objects in mid-air rather than a trick of smart glass optics. There are even companies that specialize in specific capabilities, such as eye-tracking cameras for VR headsets. One of the best, German company SensoMotoric Instruments, was acquired by Apple a few years ago.
AR/VR Hardware Accessories
While many AR/VR experiences are limited by what you can see, a truly immersive and interactive VR experience down the rabbit hole should make it feel like those roundhouse kicks to the face are real. Haptic technologies enable users to feel forces, vibrations, or motions. There are plenty of startups developing technology to help VR users feel with all five senses, including an outfit called Ultrahaptics, which uses ultrasound waves to mimic sensations while one is plugged into the Matrix.
Content may be king, but virtual reality content hasn’t really risen far from jester status yet. Everyone assumed VR games would dominate, and plenty of virtual reality gaming companies have emerged – but the genre hasn’t had its Fortnite moment yet like augmented reality game company Niantic did with Pokemon Go. Video game makers of simulated worlds like Improbable and video game engine developers like Unity Technologies are among the leading companies in this space.
Of course, there’s more to entertainment than video games, starting with virtual reality movies, which remain quite niche, but with the world on neverending lockdown in 2020, maybe we’re due for a blockbuster at some point. Live VR events like sports and concerts are a less likely bet, given the suspension of most live entertainment, though real-time VR video could someday replace Zoom meetings if we’re lucky. You may not want to show up in person, so there are companies that have developed technologies for scanning yourself into a virtual reality game or movie – even volumetric scanning using a smartphone. Another use for virtual reality in the Age of COVID is as a social media tool that seems most likely to bleed into the business world.
AR/VR for Enterprise Applications
In fact, while we’re waiting for AR/VR to catch on with consumers, the business world is quietly embracing the technology as a collaboration tool, especially with the ability to view and even manipulate data in three dimensions. The technology is also seeping into industries as diverse as construction, healthcare, and retail.
The business case for AR/VR virtual collaboration has been steadily building for the last few years, especially as the consumer side of the industry remains stuck in the doldrums. In our context here, virtual collaboration encompasses the use of augmented, virtual and mixed reality technologies for shared meeting spaces (real and digitally rendered) or at a job site. There’s nothing virtual about the payoff: Augmented reality businesses claim they can cut tasks like troubleshooting by more than half, often eliminating the cost of sending a technician on a site visit. Giant retailers like Walmart are turning to VR startups for enterprise solutions like employee training.
Data visualization in different collaborative and data-rich 3D environments like AR/VR is also becoming increasingly common. The ability to manipulate data out of thin air is more than just the fulfillment of some sci-fi wet dream born from movies like Minority Report. A number of companies have emerged with different kinds of visual collaboration software solutions that uncover trends and patterns hidden by a flat two-dimensional world.
One market where the business adoption of virtual reality technology seemed like a no-brainer is the building industry. There are some pretty obvious VR applications across architecture, construction, and engineering. What better way to show someone how a space will look without the space actually being built?
Virtual collaboration is especially useful if any rework to the space costs a lot of money and dozens of stakeholders – scattered across the globe – have differing opinions about how it should all come together. It’s not just about visualizing how your rug from Target will really tie the room together. VR companies also hope to change the construction industry by offering skills training for construction workers like forklift operators and even welders. The future of VR and AR in construction and related industries seems pretty strong.
The connection between AR/VR and healthcare may seem less obvious, but the business cases are at least as good as the ones we just discussed. Augmedix and Mindmaze were a couple of the first VR healthcare startups we covered. The former has leveraged Google Glass as a vital interface between doctors and patients, automatically accessing information like medical records. The latter uses virtual reality (along with artificial intelligence) to help retrain brains suffering from trauma like a stroke. Other virtual reality startups in healthcare are addressing everything from medical training to treating pain. VR also has applications in mental health problems, from addiction to depression.
Augmented reality is finding applications focused on surgical outcomes. Startups have developed solutions such as assisted surgery where real-time or scanned imagery is augmented using smart glasses or heads up displays. In fact, the use cases for AR in healthcare are pretty robust, and other augmented reality surgery companies claim to have the tech for real-time visualization of anatomy or surgical simulations, among others.
We should also include a brief mention here of how wearables with some AR/VR-type tech are helping the blind to see using various vision-enhancement devices. In fact, technology for the blind could be worth billions, as the big R&D brains out there figure out ways to help the sightless see again.
For some, technology is only really valuable if it can help you sell stuff that people probably don’t need. One of the most well-funded (in the WeWork sense) companies in this space is called Blippar, which leverages its AR technology to power marketing campaigns to sell everything from ice cream to a Porsche. Other companies, like Banuba, use AR to augment how you see yourself with different kinds of face filters (think OG Snapchat) for selling beauty products, for instance.
Investing in AR/VR Stocks
A few years ago, it was pretty much impossible to invest in virtual reality stocks without doing some creative portfolio building. Ditto for augmented reality stocks, without resorting to pick-and-shovel plays, such as companies selling the components needed to create AR hardware. However, one of the more interesting pick-and-shovel plays is a Swedish company, Tobii, which develops eye-tracking technology for various industries, including healthcare to help paralyzed people to communicate. A couple of years ago, when we wrote about Tobii, the company was spending big on R&D for more scalable markets such as AR/VR. Since that article, Tobii has seen its market cap grow by more than ten-fold.
Another strategy is to see which public companies might be trying to revive their fortunes by pivoting from whatever failing venture is dragging down stock prices to shiny and new technologies like AR/VR. For instance, there’s a $25 billion Taiwanese company, HTC Corp., which made its bones as a smartphone manufacturer but is shifting its focus to become a VR hardware stock (and incorporates Tobii eye-tracking technology in its Vive Pro Eye, as of last year). Massachusetts-based Kopin Corp., a manufacturer of microdisplays, is another potential public company morphing into a AR/VR hardware stock.
One of the first pure-play AR/VR stocks we came across was a New Yawk hardware manufacturer called Vuzix, a small market cap company that has been around for more than 20 years. Vuzix has clearly pivoted into the enterprise smart glasses market after also developing AR/VR products for the entertainment and defense industries, reflecting a widespread trend that the business world is more ready for this kind of technology than the consumer market.
A much more recent addition to the scene is a Chinese augmented reality stock, WiMi Hologram Cloud Inc., which basically specializes in AR advertising. Another key competitor that has developed a seamless way to integrate digital objects into previously created content is London-based Mirriad. While the former trades on the NASDAQ, retail investors will need access to the London exchange to get a piece of the latter.
Another company out of the UK, C4X Discovery, is a small-cap using virtual reality for drug discovery by enabling researchers to visualize the right molecules that can unlock proteins for targeted healthcare outcomes.
Which if any of these companies should you target in your portfolio? Frankly, it’s a crapshoot, with the odds definitely in favor of the house.
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