The market for augmented reality apps and devices, which superimpose digital objects over real world ones, could grow from practically nothing today to $90 billion by 2020, according to tech M&A advisory firm Digi-Capital.
After early blunders like Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google Glass, the AR market recently gained mainstream momentum with the popularity of Niantic's Pokemon Go -- which prompted many investors to seek out AR-related stocks.
Most "pure play" AR companies are start-ups instead of publicly traded companies. However, there are still a few ways that investors can gain valuable exposure to the AR market via bigger tech companies. Let's examine four such companies -- Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Google, and STMicroelectronics (NYSE:STM).
Microsoft's HoloLens can project 3D Minecraft on table tops, project interactive holograms of 3D designs for graphic and industrial designers, and even "teleport" another person's full-body hologram into your room. Several major partners, including Lowe's and Volvo, already use HoloLens to showcase their products in augmented reality.
Microsoft's upcoming Windows 10 Creator Update will add 3D image capture and editing tools to the OS, which will enable artists and developers to create 3D objects which can be viewed in HoloLens and its upcoming VR headsets. Microsoft claims that the tools will be so user-friendly that 12-year-olds can create their own holograms. However, the developer version of HoloLens still costs $3,000 -- indicating that it won't become a mainstream gadget anytime soon.
Intel's major play on AR is Project Alloy, a reference design for AR headsets similar to the HoloLens. The device is powered by Intel's sixth generation Core processor and its RealSense depth-sensing cameras. Unlike HoloLens, Project Alloy doesn't need to be tethered to a PC. By offering this reference design to OEMs that want to quickly release AR headsets, Intel could widen its moat against challengers like Qualcomm.
Intel is also investing heavily in the computer vision technologies, which AR apps, drones, and autonomous cars need to "see" obstacles. It acquired computer vision companies Itseez and Movidius over the past year, which could enhance the ability of its RealSense cameras to identify objects and surfaces.
Google has noticed the game-changing potential of Intel's RealSense cameras in the AR market. Earlier this year, it partnered with Intel to develop Project Tango, a platform which enables smartphones and tablets to identify real-world objects with the RealSense camera and project AR overlays on them.
For example, a user looking through a Project Tango display could change the walls and floors of a real room, or put virtual masks and costumes on nearby people. We haven't heard much about Project Tango since then, but many industry watchers have suggested that the project could be merged with its new VR platform Daydream.
Google has also invested heavily in Magic Leap, an AR start-up which is reportedly developing a mixed reality headset akin to the HoloLens. It's still unclear how all these pieces will come together, but Google will likely adopt a more cautious strategy after Glass flopped due to its awkward appearance, pricing issues, and privacy concerns.
STMicroelectronics manufactures a wide variety of chips for connected cars, wearables, and Internet of Things gadgets. It also makes motion sensors (accelerometers and gyroscopes) for smartphones and tablets.
STMicro lost ground in motion sensors to its smaller rival InvenSense over the past few years, but it recently launched an ultra-low power 6-axis gyroscope and accelerometer combo device designed specifically for VR and AR devices. The device has already been certified for use with both the Project Tango and Daydream platforms.
As the AR and VR markets grow, rising demand for more motion sensors should enable STMicro to leverage its scale and offer its sensors at lower prices than InvenSense. STMicro is also heavily invested in the computer vision market -- it manufactures ADAS (advanced driver assistance systems) leader Mobileye's EyeQ computer vision chips, and produces LIDAR technologies for autonomous driving, AR, and VR uses with Microvision.
The key takeaways
Microsoft, Intel, Google, and STMicro all represent interesting ways to gain exposure to the AR market, but investors should note that they won't represent major sources of revenue for these companies yet. But if the market takes off over the next few years, all four companies could reap some big rewards.
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