Apple stock could soon be riding on more than just iPhone sales. CEO Tim Cook has mentioned their interest in augmented reality, a feature that’s rumored to be included on the iPhone 8 later this year. It is this rumor that UBS analysts focused on in their note about boosting their price target on Apple stock. However, they insist that their higher price target is based on improving rates for upgrades and retention.

Meanwhile, a new report from IDC indicates just how fast AR and VR are growing, which demonstrates that Apple should really get a move on if it wants to dominate the space.

Apple
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Augmented reality could boost Apple

In a research note dated Feb. 28, UBS analyst Steven Milunovich raised his price target for Apple stock from $138 to $151 per share and reiterated his Buy rating. He said his firm’s research suggests that AR could be the iPhone maker’s next big innovation and that “its competencies could make the company a winner.”

He described his sources within the industry as “upbeat and anxious to see what Apple does.” He added that investors might be surprised at the way augmented reality spurs new life in iPhone and iPad sales. The technology may even result in some new products from the company, and Milunovich says his sources told him that Apple may already have more than 1,000 engineers working on it for the iPhone.

Apple prefers AR over VR

Augmented reality is similar to virtual reality, although Cook definitely shows a preference for the former. AR projects things into the real world around the user, and it’s widely seen as connecting people, while VR places the user into another world, possibly isolating them from other people, Milunovich explains.

Cook feels that augmented reality could one day be as big as the iPhone, although he notes that it will take time to get it right. Milunovich believes that 3D mapping will be the most important element in the use of AR. He also feels that the iPhone 8 might have an early form of the technology, noting that while Apple usually isn’t first with something, it tends to win the battle over mind share.

Possible steps toward augmented reality

Facial recognition on the iPhone is the first step toward augmented reality, and he expects this within the next one or two years. He also believes Apple could release a software development kit for AR to allow developers to create third-party content, and more improvements are needed on the camera. He’s looking for these elements in the next one to two years as well, although he adds that the software development kit might be as far as three years off.

In the two- to three-year timeframe, Milunovich believes Apple will add advanced 3D imaging cameras to the iPad and iPhone. Then in two to five years, he will look for new hardware products and advancements to the W1 chip to improve device connectivity.

The analyst believes that Apple may have some advantages already in AR, such as its expertise in hardware and integrating that hardware with software. He also notes that most iOS users keep their devices updated, while Android users don’t necessarily do so.

Apple’s heading in the right direction

Milunovich has good reason to be so bullish on Apple for augmented reality, especially if the company really does have so many engineers working on the technology. IDC said earlier this week that spending on VR and AR is expected to hit $13.9 billion this year, marking a year-over-year increase of 130.5% from last year’s $6.1 billion. Clearly, this is a train Apple will have to get on fast if it’s going to secure a prominent place in mind share on the technology.

IDC also said in its study that spending on virtual and augmented reality is likely to reach a 198% compound annual growth rate between 2015 and 2020 to hit $143.3 billion by the end of that timeframe. The research firm expects consumers to make up the biggest chunk of these amounts, spending $6.2 billion this year on the two technologies.

The firm expects virtual reality to dominate for now due to the growing popularity of VR games, but it looks for augmented reality to leapfrog VR due to growing use in healthcare, product design and other areas.