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How Can I Invest In Virtual Reality?

By Nicholas Rossolillo - Aug 10, 2017 at 7:01AM

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Virtual reality has only recently become a viable product, but the future potential could be huge. Here are some investable ideas.

New virtual reality (VR) and closely related augmented reality (AR) technology have been hyped by a few entertainment headset makers like Facebook (META 1.70%), Alphabet (GOOGL 2.39%) (GOOG 2.36%), and Samsung (NASDAQOTH: SSNLF). While the technology is traditionally associated with video games, the market is expanding to encompass a broader range of entertainment like movies and is finding its way into some workplaces.

Last year, the combined VR and AR industry racked up a total of $6.1 billion in sales. That's not much in the grand scheme of things, but some estimates have those sales surging to $13.9 billion in 2017 and to as much as $140 billion in a short three year period. If such growth transpires, the fledgling technology is worth putting some money on now.

The problem is that there aren't many pure-play VR investments out there -- investors are primarily left with technology giants that are betting on the tech to drive incremental growth. But with sales possibly taking off in the years to come, the various stocks of those companies are an intriguing option nonetheless.

End hardware makers

The obvious place to start are the companies selling VR and AR devices to consumers. Most of these companies are also developing content stores for those devices, and the expectation is that most of VR sales will ultimately come from these devices and content produced for them. Here are the most prominent players.

Company

Market Cap

TTM PE

Forward PE

VR opportunity

Alphabet

$677 billion

32.8

24.0

VR and AR headsets and its VR software platform Daydream.

Facebook

$476 billion

41.8

27.2

Owner of Oculus, a VR headset maker.

Samsung

$315 billion

15.3

8.2

Maker of VR headsets.

Sony (SONY 1.14%)

$51 billion

80.0

16.7

Maker of VR headsets for its Playstation gaming console.

Microsoft (MSFT 1.70%)

$573 billion

32.8

22.4

VR headsets and VR ecosystem and support for developers.

HTC (HTCKF 0.00%)

$60.3 billion

N/A

N/A

Maker of VR headsets.

GoPro (GPRO 1.94%)

$1.2 billion

N/A

53.4

Action camera maker, including a 360-degree capture camera for VR content.

Chart by author. Data source: Yahoo! Finance.

Arguably the biggest fight for the growing VR market is between these companies and their competing devices. Most big tech firms have developed some sort of headset and/or content store, and their success in developing, marketing, and selling to consumers could ultimately be the driver that determines the fate of the industry.

In 2016, Sony's Playstation VR was the best seller because of its easy adoption among gamers. That underpins the need to make a convincing argument to non-gamers that VR is a good entertainment option.

Chip and software providers

Besides the end hardware, chip maker companies are helping with the advance of VR with new designs. In most cases, sales of VR chips are small and don't show up on these company's radar as of yet, but if the industry takes off it could help them drive incremental growth.

Company

Market Cap

TTM PE

Forward PE

VR opportunity

NVIDIA (NVDA 4.28%)

$100 billion

56.2

47.7

Chips, hardware, and software development tools.

Himax (HIMX 4.29%)

$1.5 billion

39.0

40.3

Chipmaker best known for work with the Microsoft HoloLens.

Ambarella (AMBA 3.54%)

$1.7 billion

30.4

21.6

High-def video chipmaker that supports 360-degree video capture.

Intel (INTC 1.46%)

$163 billion

15.0

11.7

Maker of various hardware supporting VR devices.

Qualcomm (QCOM 2.34%)

$79.7 billion

18.0

15.8

A mobile chipmaker supporting VR experiences through smart phones.

Immersion Corp (IMMR 0.69%)

$261 million

N/A

N/A

Designer of TouchSense technology in entertainment, including VR applications.

Chart by author. Data source: Yahoo! Finance.

While these chip makers don't hold the same sway over the VR industry like the big device makers do, investors can still buy shares of a well-diversified company that has a new outlet for growth.

VR making it mainstream?

Besides end hardware and chipsets, some companies are also betting on VR in other unique ways to offer new entertainment experiences and boost business. Ideas have stretched from VR roller coasters to VR movies. In addition, some companies are trying to use VR and AR in the workplace. One such example is from an aviation industry supplier, Rockwell Collins (COL), that is using VR to enhance its customer experience with virtual training.

Company

Market Cap

TTM PE

Forward PE

VR opportunity

Six Flags (SIX 13.87%)

$5.1 billion

49.3

23.9

Roller coaster theme park operator, with several VR enhanced rides.

IMAX (IMAX 1.69%)

$1.4 billion

81.5

20.2

Movie theater technology and now VR experience provider.

Rockwell Collins

$17.8 billion

19.6

15.2

Aviation systems designer that makes VR simulators for pilots in training.

Chart by author. Data source: Yahoo! Finance.

Where investors should start

The VR industry is still young and developing, and as such I think companies working on end user experiences have the most to gain. Once devices get into the hands of consumers, revenues will be primarily driven by software. That makes the end hardware makers, which are also building out app and software development ecosystems, the best bet.

Chip makers and other companies trying to foster growth with VR will ultimately be dependent on end hardware makers being able to further develop the technology and effectively market it to consumers. The industry has been divvied up multiple ways and no clear-cut leader has emerged as of yet, and that competition could keep a lid on growth expectations.

If growth is slower than the lofty forecasts that have been made, the large tech companies at the forefront of VR development are a good bet as they aren't fully dependent on the tech taking off or not.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Nicholas Rossolillo owns shares of Ambarella and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Ambarella, Facebook, GoPro, IMAX, and Nvidia. The Motley Fool owns shares of Qualcomm and has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$121.68 (2.39%) $2.84
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$187.09 (4.28%) $7.67
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$180.50 (1.70%) $3.01
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$291.91 (1.70%) $4.89
Intel Corporation Stock Quote
Intel Corporation
INTC
$36.11 (1.46%) $0.52
Sony Corporation Stock Quote
Sony Corporation
SONY
$86.80 (1.14%) $0.98
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$151.29 (2.34%) $3.46
Ambarella, Inc. Stock Quote
Ambarella, Inc.
AMBA
$91.75 (3.54%) $3.14
Six Flags Entertainment Corporation Stock Quote
Six Flags Entertainment Corporation
SIX
$24.05 (13.87%) $2.93
Rockwell Collins, Inc. Stock Quote
Rockwell Collins, Inc.
COL
IMAX Corporation Stock Quote
IMAX Corporation
IMAX
$16.85 (1.69%) $0.28
Himax Technologies, Inc. Stock Quote
Himax Technologies, Inc.
HIMX
$7.53 (4.29%) $0.31
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$122.65 (2.36%) $2.83
GoPro, Inc. Stock Quote
GoPro, Inc.
GPRO
$6.84 (1.94%) $0.13
Immersion Corporation Stock Quote
Immersion Corporation
IMMR
$5.87 (0.69%) $0.04
HTC Corporation Stock Quote
HTC Corporation
HTCKF
$6.50 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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