Apple has more than 1,000 engineers working on augmented reality (AR)-related projects in Israel. It’s not a huge surprise considering Apple CEO Tim Cook has repeatedly shown his love for augmented reality. He said last month that AR presents a much bigger opportunity than virtual reality. In fact, he believes that AR could be as big an opportunity as the iPhone. A new report claims that Apple could debut AR as early as later this year with iPhone 8.

iPhone 8 Concept
Image Source: Moe Slah / Concepts iPhone / YouTube video (screenshot)

AR all set to debut with iPhone 8

UBS Securities analyst Steven Milunovich said in a research report (via Business Insider) that the AR technology could be ready for implementation in the 10th anniversary iPhone. The analyst said it would include “moderate 3D mapping” and an AR development kit that would allow developers to create third-party content. Milunovich cites Tim Cook’s numerous comments as evidence that the tech giant was pursuing AR as the next big thing.

Apple has made several strategic acquisitions in the AR space over the last few years. They include PrimeSense, an Israel-based 3D sensor maker; and RealFace, an Israeli facial recognition and cyber security startup. Apple has also acquired Metaio, a German augmented reality startup. Milunovich raised his price target on the stock from $138 to $151 with a Buy rating.

AR won’t be limited to the iPhone 8

Milunovich’s statement is consistent with KGI Securities analyst Ming-Chi Kuo’s report that the iPhone 8 would have a new 3D laser sensor for facial recognition and augmented reality features. Kuo stated that the new sensor would be capable of sensing 3D space. It would allow users to take “3D selfies” that they could use as avatars in AR games.

Milunovich said Apple was more interested in AR than VR. Virtual reality delivers an “isolating experience” where the users are “blind to the real world.” In contrast, AR adds a new layer of information on the existing environment. The analyst believes the Cupertino company could easily add AR to new models of the iPhones and iPads. It wouldn’t require a new product category. It means the company could easily sell the technology to its existing customer base.

Apple already has the hardware in place

Ming-Chi Kuo believes that Apple will be 3-5 years ahead of rivals in augmented reality. According to research firm IDC, the combined AR and VR market would be worth $13.9 billion this year, up 130.5% from $6.1 billion last year. IDC estimates that the AR/VR market would grow to a staggering $143.3 billion by 2020. Since Apple already has the hardware in place (iPhones and iPads), it can be a frontrunner in the market.

Separately, RW Baird analyst Will Power told CNBC’s Squawk Box that Apple stock is worth owning going into the iPhone 8 supercycle. The new iPhone and other products and services would push the stock closer to a $1 trillion valuation. Billionaire investor Warren Buffett disclosed earlier this week that he had purchased about 120 million additional shares of Apple in January.