Virtual reality, augmented reality, mixed reality… All these new terms are enough to make your head spin. They sound like some futuristic technologies that won’t be a reality in our lifetime, but like it or not, they’re already here. The first tech company that can cross the finish line with a product that the masses are quick to adopt will be the winner, but which big name will it be? Or is there an emerging or currently unknown company that will have the winner?
What is virtual reality?
Of course investors who want exposure to virtual reality, augmented reality or mixed reality (VR/ AR/ MR) can’t easily invest in private companies, but there are some stocks with exposure to these emerging forms of technology. Virtual reality involves wearing something on the head which holds a screen in front of you (such as Facebook’s Oculus headset), while augmented reality layers extra information over your physical world (i.e., augments it with information inserted before you). As you might guess, mixed reality combines the best of both worlds.
Bank of America Merrill Lynch predicts that these three forms of technology will be a $150 billion market by the end of 2022.
ValueWalk's Raul Panganiban interviews Dr. Kathryn Kaminski, Chief Research Strategist at AlphaSimplex, and discuss her approach to investing and the trends she is seeing in regards to quant investing and hedge funds. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with AlphaSimplex's Read More
BAML strategist Beija Ma and team released a primer on VR/ AR/ MR technologies geared toward investors interested in getting exposure to names within the sector. They describe these three technologies as “enabling a 4th wave of computing power via a spatial computing revolution that integrates disruptive technologies such as sensors, Big Data, the cloud, AI, and wearables.”
They believe that virtual reality and its related technologies could become the “form factor” for next-generation computing by becoming a sort of interface for the growing Internet of Things. The IoT is essentially looking for “one device to rule them all” in a hat tip to the phrase from Lord of the Rings: “one ring to rule them all.”
The BAML team explained that VR/ AR/ MR could be the basis for the “one device to disrupt and rule the world of technology.” Such a device would connect the digital and physical worlds for the 3.5 billion people who use the Internet, 3.6 billion people with mobile broadband, and 1.6 billion people with TVs. What a sign of the times: people using the Internet and/ or mobile broadband greatly outnumber those who have TV sets.
Investments, startups among the drivers of virtual reality
Ma and team believe smartphones with the installed base of 5 billion “gateway devices” by 2018 will be one of the main drivers of virtual reality and its counterparts. They also expect Generations Y and Z to drive adoption, as they check their smartphones 150 times a day. Investors could also drive adoption, as venture capitalists invested a record $2 billion in these technologies within the last 12 months. There have also been 1,300 startups in the world of VR/ AR/ MR in recent years, they added, which demonstrates that it’s truly anyone’s race.
Mergers and acquisitions should also drive virtual reality adoption, as the BAML strategists noted that Apple, Facebook and Google together acquired more than ten companies in the space. Also rolling out content such as the hugely popular game Pokemon Go, which is very close to being augmented reality, although not quite a pure play in the technology, should help drive adoption.
At the tipping point of VR/ AR/ MR
The BAML team estimates that there could be between 250 million and 300 million users of virtual reality, augmented reality or mixed reality by the early 2020s.
They anticipate that these technologies could capture two-thirds of our leisure time and half of our leisure dollars. Additionally, they could transform education, entertainment, financial services, gaming, healthcare, media and retail.
They expect augmented and mixed reality in particular to impact every sector and company by transforming the way they communicate, design, manufacture and sell. They believe that more than half of organizations are testing augmented reality because it could speed up the assembly process by 30%, cut installation and maintenance costs by 25% to 60% or improve accuracy by 40% to 90%.
Ma and team expects “the tipping point for exponential growth” to arrive by 2019 or 2020.
Virtual reality, augmented, mixed reality stock picks
Of the total $150 billion market they expect VR/ AR/ MR to make up, they expect virtual reality to account for between $30 billion and $34 billion and augmented and mixed reality to make up $90 billion to $117 billion.
They unit the three technologies under the term “future reality” and offer a list of stocks with exposure to them.