Virtual reality (VR) and augmented reality (AR) may transport users to simulated worlds and overlay digital information onto the physical realm, but the profits to recognize from the growing industry are no illusion.
A recent Goldman Sachs research report predicts the VR/AR industry, which introduces users to virtual realities and brings digital information to the physical world, may soon become an $80 billion market ($45 billion in hardware and $35 billion in software) by only 2025. Since virtual reality is still a new and developing space, analysts say the forecasted $80 billion is likely to waver according to actual adoption rates among enterprise and consumer users. If VR/AR sees rapid adoption, then the market may hit a whopping $182 billion, but sluggish uptake would result in a sizable $23 billion worst-case scenario. The VR/AR hardware market alone has the potential to surpass 2025 revenue predictions for television ($99 billion annually) and tablet PCs ($63 billion annually).
In light of such steep growth rates and innovation, there’s no doubt VR/AR will create new industries and disrupt existing ones. Analysts suggest the $11.6 billion video game industry will experience the most disruption because it is the first consumer market to developing VR products and establish a community of users. Not to mention, total immersion into an alternate universe will create the ultimate video game experience. In addition to video games, other spaces that will see major changes include the multi-billion dollar real estate, live event, retail, education, health care and military industries.
In each of the previously mentioned industries, businesses have already begun to experiment with VR/AV advancements to transform traditional activities like buying new homes, seeking medical advice or earning an education. Sotheby’s now shows luxury homes to prospective buyers via virtual reality devices; Volvo uses Microsoft’s HoloLens to give consumers the opportunity to build their dream car; and Atheer has created augmented reality AiR glasses as a hands-free medical tool for doctors.
Although VR/AR promises to produce exciting and beneficial technologies, Goldman’s forecasts for consumer and enterprise adoption rates are less than historical rates seen during the introduction of tablets and PCs. Analysts suggest widespread acceptance will upsurge once virtual reality businesses alleviate “cyber sickness”, boost application development and slash price tags. Finally, one of the largest obstacles facing VR/AR is the classic “chicken-and-egg” dilemma. Buyers may be slow to buy VR/AR without existing applications and content, but developers are hesitant to make investments without a secure installed base. Google, one of the largest players in VR/AR, has already tackled consumer adoption issues by forging a partnership with The New York Times, in which 1 million Google Cardboard viewers were sent to subscribers to demonstrate how virtual reality can revolutionize common activities, such as reading the news.
Considering analysts’ rousing forecasts, it’s no wonder that venture capital firms have poured $3.5 billion into VR/AR investments in the last two years . Although most investments in virtual reality are limited to accredited investors, individuals can cash in on expected tailwinds with strategic changes to their personal portfolios. Goldman Sachs predicts the following 11 stocks will lead the VR/AR trend and become major players in the $80 billion virtual reality market: Alphabet Inc., Advanced Micro Devices, Facebook, GoPro Inc., HTC, Largan Precision Company Limited, Microsoft, Nvidia Corp., Qualcomm, Samsung Electronics and Sony .
Alphabet, the parent company to Google Inc., launched its first virtual reality viewer in 2013 and has continued to invest in VR with projects like Google Cardboard and 360-degree video on Youtube. In fact, the technology giant has already distributed 2 million Cardboard viewers and developed 100 virtual field trips for K-12 educators. Suggesting continued investment in VR/AR, the company also recently appointed Clay Bavor, who previously managed Cardboard, Gmail, Docs, and Drive, to lead a new virtual reality division. Although Google had an unsuccessful foray into virtual reality with Google Glass in 2013, analysts predict the company has learned from its mistakes and devised more successful plans. Rumor has it that Google is already building a new version of Glass and has secretly distributed the product to health care, manufacturing and energy companies.
Advanced Micro Devices
Advanced Micro Devices (AMD) builds computing and graphics processors, which are central for high quality VR gaming. The company already has established partnerships with equipment manufacturers, headset manufacturers and software developers. Additionally, new virtual reality devices such as the highly anticipated Oculus Rift can only operate with higher-end graphics processing units, such as those from AMD.
Facebook is in a top spot to capitalize on virtual reality advertising revenues due to its $2 billion acquisition of Oculus, a virtual reality technology vendor, in March 2014. Although Oculus currently focuses on video gaming, but Mark Zuckerberg plans to expand the scope of the technology to include digital communication. Oculus recently launched pre-orders for its Oculus Rift head-mounted-display device, which it will sell at cost for $599. Selling at cost may harm Facebook’s profit margins; however, potential future advertising revenues are likely to makeup for any losses.
As the leading action camera vendor, GoPro is well-positioned to profit from the content creation and image capture areas of virtual reality. In fact, the company already offers spherical video capture for professionals with camera mounts that can accommodate up to 16 cameras, such as the Google Odyssey. GoPro will continue to expand its presence in spherical video capture by selling multi-camera mounts to general consumers. Not to mention, the camera vendor also acquired Kolor in April 2015 to enhance its photo and video editing software offerings.
HTC has co-developed Vive, a virtual reality headset, with major PC game platform company Valve. HTC has combined its experiences in smartphone technology with Valve’s software gaming expertise and established online user base, to ensure a strong entry into the virtual reality gaming market. Vive is expected to be a fierce competitor to Oculus Rift, sporting better displays and lower input costs — not to mention access to Valve’s existing 100 million global members.
As a leader in camera lenses for consumer electronic devices, Largan is likely to become the top producer of miniature lenses to supply VR/AR companies. According to analysts, the company is prepared to meet demands from a multitude of virtual reality head-mounted-device producers since it is already capable of producing a wide variety of lenses. With a superior reputation to its competitors, Largan has the potential to control a significant share of analysts’ predicted 500 million future annual shipments of magnifying lenses for VR/AR technologies.
Within the growing VR/AR space, Microsoft has focused on augmented reality advancements by partnering with companies like Autodesk to build products for engineering and healthcare professionals. The software company has already announced a 1Q16 launch date for the Microsoft HoloLens, a wireless holographic computer, which will sell on the retail market for $3,000. Large companies have already warmed up to HoloLens, such as auto giant Volvo, which adopted the technology so consumers can virtually build their own dream cars regardless of current inventories and so dealers can minimize inventory space to save on real estate expenses.
Nvidia, a graphic processor technology company, may see long-term growth in the VR technology boom due to its “best-in-class” graphics cards. Similar to AMD, Nvidia is in an ideal competitive position because leading VR device companies, such as Oculus and HTC, can only use certain high-end graphics cards with existing technologies. Nvidia has also formed partnerships with about 250 companies to create new virtual reality applications for consumer and enterprise use.
Qualcomm currently services all major handset and tablet companies, so it is no stranger to the business of connected devices. As a large producer of chipsets, Qualcomm will recognize profits from virtual reality devices, which will feature cellular, WiFi or Bluetooth functionalities. The company’s application processing technology also supports graphics processing units, which accelerate the creation of images and are a vital component of VR/AR products.
Samsung Electronics (SEC) is using its position as the world’ largest mobile phone and TV manufacturer to bridge the divide between smartphones and virtual reality. SEC partnered with Oculus in September 2014 to build Gear VR, a virtual reality headset is compatible with Samsung Galaxy smart phones. Unlike other virtual reality devices, Gear VR is wireless and powered by smartphone. Samsung has also adopted a lower $200-$100 price range for its Gear VR products, which heighten consumer purchases for a compatible Samsung smartphones.
In addition to being powerhouse in gaming, music, film, television and electronics, Sony is a virtual reality veteran. Sony first researched and developed virtual reality products in the 1990s, which provides a strong foundation for the release of PlayStation VR, the virtual reality headset to operate with a gaming console. Analysts have high hopes for PlayStation VR due to PlayStation’s enormous userbase, large supply of third party content and high compatibility for third party developers.
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