Experienced investors will likely be familiar with the hype cycle. A new technology or service will arrive on the scene to enormous fanfare: "This is going to change everything," they'll hear. "It's the Next Big Thing." But then, after a few years of rising hopes, that early promise still seems far from arriving, and folks start questioning whether the potential they saw was real after all.
Well, under the heading of "seeing things that look real but aren't," this Motley Fool Answers podcast is dedicated to augmented reality. Co-hosts Alison Southwick and Robert Brokamp have invited a guest to help investors get a handle on where that technology stands today: senior Motley Fool analyst Jason Moser, who just happens to be spearheading a new Motley Fool service, Extreme Opportunities: Augmented Reality. They'll talk about exactly what this tech is and where it's making real headway as a useful tool in a range of industries, despite its erratic path toward mainstream use in the consumer world. They also dig into the more important question for investors: which companies are building the tech, moving it forward, and capitalizing best on the trends.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on July 2, 2019.
Alison Southwick: I am really happy that Jason Moser is joining us in the studio, today, because he's really excited about an investing trend we're going to talk about and I'm somewhat skeptical. Maybe, Jason, you were thinking this was going to be a bunch of softball questions lobbed at you...
Jason Moser: Alison...
Southwick: ...and you were just going to swing for the fences.
Moser: ...I know you and I don't think I ever would expect softball questions from you.
Southwick: Right. Well, this could be a really fun interview where Jason makes a point and I just go, "Yeah, I'm not buying it."
Moser: I could pull a Steve Jobs and just be like, "You said you weren't going to talk about that." Just get up and leave.
Robert Brokamp: There you go.
Moser: Did you ever see that video?
Southwick: No. When did he do that?
Moser: It's like some old CNBC interview. I guess before the interview they had agreed on something and then, of course, the reporter starts going into this area where he said they wouldn't go. Jobs politely says, "I thought we said we weren't going to talk about that," and he just gets up and leaves. It was pretty classy.
Southwick: Would you do that to me?
Moser: No, I wouldn't do it to you. Maybe Bro, but not you.
Southwick: Thank you! Thank you!
Brokamp: It happens to me every day!
Southwick: So what we are going to talk about today is the investing trend of augmented reality. I think we know virtual reality. You put on some goggles and then you look around and it's like you're in another place. But what makes augmented reality so special and so exciting? That's what we're going to talk about today. Jason, kick us off! What is the difference between augmented reality and virtual reality?
Moser: That is a very good question, and that is the question I lead off typically whenever I talk about this service. They are two different things, though they share some common traits. And I think the simplest way to look at it is with virtual reality, you're essentially looking at diving into a completely computer-generated world. You're leaving our reality here -- all of the physical nature of this reality -- and going somewhere else completely that doesn't really have anything to do with reality.
Some people call it a form of escapism, and in some cases that is. I think that's always been why virtual reality is a bit of a sexier headline, because you see those visuals and the nature of it and you think, "Wow, the possibilities!"
Augmented reality plays out in our daily lives a lot more than virtual reality ever will, and that's because we're taking the physical world that we see and encounter every day and we're overlaying technology on top of that. The easiest example that most people can relate to is the recent game Pokémon GO. You would run around town with your phone. You would hold your phone up and then on your screen you would see a picture of a park. And then in the middle of that park is some character from the game.
Southwick: Or if you used your camera, you would literally see a Pikachu sitting in a fountain...
Southwick: ...in the middle of your park.
Moser: And so that is the technology being overlaid on top of the real world. I think that's why it's so exciting; that ultimately we are living in the real world every day. But really what astounded me in digging into all the research for the service was the number of different markets -- the number of different areas -- where augmented reality is really having such an impact.
Southwick: Because Pokémon GO and Snapchat filters are fun. They're gimmicky, in a way, so, yes. I would like to hear about why augmented reality is more than just a gimmick. Do you want to talk about some different practical applications?
Moser: Absolutely! The one thing I will say is that there isn't a lot of exposure to gaming in this service. It came out with 15 recommendations initially for this service, and none of those 15 recs are pure gaming companies. That's because, really, you haven't seen practical applications, yet, other than just clever consumer Pokémon GO or Snapchat filters. Those are fine, but at the end of the day, what kind of value is that creating?
Companies in the healthcare market are really benefiting from this technology, and a lot of cases where companies are using augmented reality is in training physicians. Surgery, for example, which is obviously an area where you need a lot of practice to get really good at it. You don't have a second chance if you're cutting into someone and you screw it up, so augmented reality is serving as a very popular training tool for physicians in med school and even when they get out.
Engineering is another one that really strikes me as a big opportunity. At Fool Fest, I was talking about a company called Autodesk which essentially makes all of the software that engineers use. Whether it's a building or a plane or these cool special effects that you might see in movies, augmented reality plays a role oftentimes in the design of these types of things. It's another tool that engineers can use to help visualize, plan, and really get their vision not only down on paper, but bring that vision to reality.
Southwick: A lot of how we invest at The Motley Fool is in companies that are very consumer facing. You've talked about some that are more healthcare and engineering. In what ways do you think augmented reality would have the biggest potential impact in our daily lives?
Moser: Obviously, here not everybody always works on site. We have a lot of people who work remotely, wherever that may be, so I think in some cases augmented reality can serve as a good productivity tool if we're doing video conferencing, for example. If Bro's in California and I'm in Virginia and we need to have a meeting or a series of meetings when we're working together, augmented reality is starting to play a role more in video conferencing and helping workers become more productive. Visualizing things that are going on. And if there's a tool where he and I can both interact with this tool to ultimately produce what we're trying to produce, that's going to be a more efficient use of our time. And in regard to consumers...
Southwick: Where is this going to be in our daily lives? Think of Google Glass. Would we all agree that Google Glass was a flop? We're not walking around with Google Glasses on our faces.
Moser: We are not, yet. In its first iteration Google Glass was not what I think they were hoping it would be. To be clear, Google has not dropped the headset idea altogether. They're still working on stuff, as is Apple. Microsoft also has their HoloLens. You're seeing all of these types of headsets as one step in trying to figure out exactly what the easiest way is for consumers to interact. How do we bring that augmented reality into our everyday [lives]? Is it a headset? Is it a watch? Is it a phone?
But when people think about augmented reality, I think the first thing they think of is visual, and I think most people think it's only visual. The fact of the matter is it's not. We're talking about all of the senses, from visual to hearing to touch to smell. There are all sorts of ways that augmented reality plays into our lives.
Haptic technology -- if you have an Apple Watch or a phone that buzzes or the new Apple iPhone and you have something where you feel that little bump when you do something in particular, that's a form of augmented reality in taking what's going on in our world and overlaying technology to communicate in a different way.
That's part of it right there, is understanding really what augmented reality is. It stretches beyond just the visual. A really good book I read recently on the topic -- Augmented Human -- is written by Helen Papagiannis. She's an expert in the industry. That's what that book did for me, was to open my eyes to all of the different forms that augmented reality takes beyond just visual. But I think visual is where people draw the line. That's maybe why you would be a little bit skeptical.
Southwick: There are a few reasons why I'm skeptical and not just the visual. I can imagine a world where -- oh, my gosh -- Bro needs open heart surgery. There's only one specialist in the world who can do it. That specialist is a doctor who lives in Germany. That doctor is going to put on his haptic gloves and magically, thousands of miles away in Alexandria, Virginia, the movements of this specialist are actually being played out in Robert Brokamp through robots or whatever. I can imagine a world where that happens because that's stuff of movies and that would be pretty awesome. Because I don't want you to die, Bro!
Brokamp: Oh, thank you so much!
Southwick: I want the best doctors in Germany, or wherever they are, working on you. But how far away is that? I remember in the 1990s, people were like, "Oh, my gosh, virtual reality is the future. It's going to take over. Ah!" Twenty years later I'm still asking, "Where's my virtual reality in my day-to-day life?" It just seems like it's been a long time coming. We are patient investors here at The Motley Fool, but if you're like, "Yeah, this isn't really going to play out for 10 or 20 years..."
Moser: You make a good point, there, in regard to virtual reality. When a new technology takes over like that, and it's so eye-opening and so astounding, you automatically think there are going to be these tremendous implications for it. But if you really get back to the core of what virtual reality is, again, it's essentially a form of escapism, more or less. I don't know, other than going to an amusement park...I mean, there are plenty of implications. Don't get me wrong.
But I think what we see, in virtual reality for the most part, is when you go to an amusement park. A few years back we went to Universal Studios with our girls. And a lot of the rides there are now virtual-reality rides. You step into this auditorium. You put these glasses on and you essentially are escaping into this different form of reality.
Southwick: And Alison gets really motion sick...
Southwick: ...and everyone has fun.
Moser: Exactly. You get a little motion sick, and some of those rides could be considered more on the augmented-reality spectrum. But it initially is difficult to fully understand where the technology can take you when the technology is still so new. And I think that augmented reality qualifies, still, as a very new technology for the most part. It's neat technology. It's a matter of trying to figure out exactly where it's going to help the most.
Companies in the financial industry, believe it or not, are actually using augmented reality in order to be able to parse and understand data better in this data-driven world. Imagine a company like Splunk,which harvests all of this machine data for a company to then use and figure out how to get value from it. It's difficult to translate.
Salesforce is a good example of a company that is utilizing augmented reality to help parse this data. You essentially put on a headset, whether it's Google Glass or something, and then it takes all this machine data and it's giving it to you in a format where you can look at it. You can visually see it and understand it.
So for a company like that, that's going to be where augmented reality might be able to help them in understanding their customers and helping grow that business. But to your point, it is difficult to fully understand because it really is such a new technology. With that said, it's a technology that a lot of companies are investing in and understanding better.
Look at it from the consumer side...if you have ever shopped in Amazon or Wayfair and bought furniture. When Wayfair came public, I think the biggest snag for most people was how in the world am I going to buy furniture online? There's no way I can fully understand if that chair or that couch is going to fit in my room. How it's going to look. It just doesn't make any sense. But now you can use Amazon and/or Wayfair, and through the magic of augmented reality technology, you can put that couch right in the middle of where you want to put it in your house. You can see the dimensions. You can see how it will look in your house and immediately understand, better, whether it's something you actually want to buy.
And companies from Home Depot to Wayfair to many others are reporting that using this augmented-reality technology in their apps is resulting in a material boost to sales because as a consumer you can make a more educated decision as opposed to hemming and hawing.
Southwick: I think I'm still waiting for that toothbrush test. How am I going to use augmented reality two or three times in my day? You know, like they say at Google, the toothbrush test.
Moser: I mean, it may not be something that you necessarily need to use all of the time during the day, but we [may] see progress continue to be made on the education front, for example. Schools and teachers, more and more, are bringing this type of technology into the classroom and figuring out ways to incorporate augmented reality technology into their lessons to make them more understandable. To make it more real for the students.
You've got to capture the attention of students. It's a very difficult thing to do with a kid -- they've got very short attention spans -- but they're finding with the augmented-reality technology they can essentially make these lessons better. They can bring more reality to it. Put characters in the mix there -- or smells or sounds -- and all of a sudden instead of reading about the Civil War, you can actually be immersed in it and not only see what's going on but hear what's going on and smell what's going on.
I think education is another great area where, just like video conferencing, maybe you don't use that every day, but perhaps your daughter will or perhaps her kids one day will. It is something that will evolve. It will get better over time. And investing is a forward-looking exercise anyway.
Southwick: It is, and maybe I just lack the vision that you have. Let's start talking about some specific companies to look at. You've mentioned a lot of companies that would use augmented reality to make their product better. Are there companies that are actually helping create the technology of augmented reality?
Southwick: I'm already invested in Disney for other reasons. What are the big players that are actually moving these innovations forward so that all the companies are going to want to buy their products?
Moser: Absolutely! The biggest no-brainer out there, I would say, is Apple. The reason why is they possess the largest augmented-reality software development platform. It's something that recently came out two or three years ago called the ARKit. It's essentially another collection of tools for developers to be able to build augmented reality-enabled apps, whatever vertical they want to pursue. Whether it's a game, or whether it's healthcare, or banking or whatever; they can use Apple's set of tools in order to build out their augmented reality vision.
I think Apple is kind of a no-brainer where that's concerned. We know what we're getting with it. It's not a pure play on something like augmented reality, and if for some reason they stumble, they're going to still make their money in other ways.
And then, of course, you look at the companies that are helping build the technology. We talk a lot about chip companies. Those can be difficult investments just because they can certainly become commoditized, or if they fall a little bit behind on the innovation cycle then another chip company takes their place. But a name that I think a lot of investors are familiar with in our world is NVIDIA.
NVIDIA is a graphics chip supplier, essentially, and they help power everything from the Magic Leap headset up to automobiles and self-driving cars. They have the DRIVE Platform, which is part of the technology that's going into these self-driving cars. I think self-driving cars are still ways away for a number of reasons, but I do think that technology is certainly inevitable. I think the biggest snag with self-driving cars is more us in the infrastructure, as far as a road system, and trying to figure out how we can drive alongside self-driving cars and not just run into everybody.
I think those are two companies that would be great for investors to at least take a look at, understanding that even if they're not buying into the augmented-reality vision, those are companies that make their money a number of different ways, and that would be a way to dip your toe into the water.
Brokamp: Let's talk a little bit about allocation, here.
Brokamp: In some of the previous episodes we've talked about some of the Motley Fool thematic services like cannabis, marijuana, where you have some pretty pure-play companies and it's a little risky, so you want to limit the amount of exposure you have to those. But this is a little different...
Moser: It is.
Brokamp: ...because there aren't that many real pure-play AR companies, and a lot of the companies that are in this space are very diversified. How do you think about allocation when you're incorporating this into your portfolio?
Moser: If you take your entire portfolio into consideration, we don't think augmented reality needs to make up some massive part of it. It could be anywhere from 10% to 40% of your overall portfolio, depending on how much exposure you want.
But you keyed in on something, there, that I think is pretty nice for investors. Probably a lot of Foolish investors already own some of these companies that are giving them some exposure to augmented reality and they don't even know it yet. We mentioned Apple and NVIDIA. You don't see many companies out there that are just solely augmented reality companies; and the ones that are typically are smaller and not public. They're private companies backed by venture capital that are trying to figure out ways to really make the best use of that technology.
I'd certainly keep my eye on those companies; but when we talk about augmented reality, you break it down into risk. You can see some of these big, well-known names that are playing into the space like Apple. That's going to be relatively low-risk investment. You go down the chain, there, to some of their suppliers or to some smaller companies that really are incorporating more augmented-reality technology than others. They may be a little bit riskier, but they certainly could possess more upside.
So very much like when we talk about small-cap, mid-cap, large-cap, I think you can look at augmented reality much the same way. Give yourself the exposure to the staid, stalwart names in there. Save the speculation for the smaller positions, because most of that speculating probably won't work out, but maybe one or two will and they give you that rule breaker effect where they have a multibagger. That's really what you're looking for.
Southwick: Jason, thank you so much...
Moser: You're welcome!
Southwick: ...for joining us and talking about this trend! I know I started this off by being skeptical. I don't know. And I am skeptical, but I think this kind of investing is not necessarily my style.
Moser: It may not be up everybody's alley. Let's be clear. This is a bit more futuristic in nature. I say investing is always a leap of faith. It just matters how big of a leap you're taking. This requires a bigger leap, no doubt. You have to keep that in mind.
Southwick: I want to live in a world where this is something that exists and is awesome, so I don't know.
Moser: We had a good question at Fool Fest this past week. Someone was asking a question about 3D technology. Remember 3D printing and how that was all the rage for a while? Your companies like 3D Systems and Stratasys and MakerBot. 3D printing was where it was at. And that was kind of a short-lived story.
Southwick: I was skeptical of that, too, by the way...
Moser: ...on the surface. It was a short-lived story on the surface, and this is something we have to pay attention to with augmented reality, because what ultimately happens is it's less about the pure-play technology and more about the companies that are utilizing that technology to do cool things.
So if you think that 3D printing is a fad that's gone and companies aren't using it, you're dead wrong. Companies out there, all over, are using it, and 3D printing is really a great way for companies like Apple and Ford to not only develop new technologies but to protect the technologies they've developed because they can build it in house versus having to contract it out or get another provider to build something for them.
Southwick: And are we seeing that awesome success story in the stock price of 3D companies? Or are we seeing it in Apple stock?
Moser: Exactly. We're seeing it in the companies that are using the technology, not the companies that are responsible for the technology. You were talking about pure plays with augmented reality. You don't really see a lot of those, but you do see a lot of companies that are really doing cool stuff with augmented-reality technology.
So a lot of what we're doing is finding a lot of great businesses out there that are already successful in their own right, and as they evolve, grow, and offer new products and services, augmented reality is becoming a part of their arsenal. And I think that's probably what investors really want to focus on most -- is how the companies are utilizing that technology in order to grow and become better.
Southwick: So Jason, thank you for joining us!
Moser: You got it!
Southwick: Thank you for sitting across the table from this skeptical woman, here! And again, where should people go if they want to learn more?
Moser: You can always follow me on Twitter @TMFJMo. I'm going to be kicking out as much of this stuff as I can without disclosing too much from the service.
Southwick: Because we did just launch a service, yes.
Moser: I don't want to make my members angry, and it's understandable. But this is a space I'm going to continue to follow, learn about, and study. And I'm going to recommend it specifically for you, Little Miss Skepticism. Get that book! As a matter of fact, I'll even lend you my copy. Read the book Augmented Human from Helen Papagiannis. At least it will open your eyes to the potential that technology holds, because for me, it initially was all about the visual, and I think her book really takes you to that next level of understanding all the different ways augmented-reality technology plays out.
Southwick: I feel like I see the potential. I just don't know that I have the patience.
Moser: Maybe you don't, but I would say between my wife and I, I'm certainly the more patient one. I don't know how that dynamic plays out with your family, Bro, but there's no question I've got more patience.
Brokamp: I'll take it!
Southwick: Jason, thanks again for joining us! This has been a lot of fun!