Virtual reality (VR) was once thought to be something of a technological holy grail -- the type of tech that science-fiction plots revolved around and a subject that futurists and gadget enthusiasts opined about to great end. There's still excitement surrounding the immersive worlds made possible by head-mounted displays, but that "holy grail" status has lessened to a degree as the dream has moved closer to reality.

Highly immersive consumer VR headsets hit the market in 2016, but high prices and a lack of must-have exclusive content meant that adoption for the new display medium has lagged behind the levels that many analysts anticipated. Head-mounted display development initiatives have also splintered somewhat, with augmented reality (AR) emerging as an alternative that's less immersive, but more connected to the real world -- and one that many market watchers and technology leaders view as having greater potential than VR.

Still, the VR market has huge potential, and VR headsets continue to offer better price-to-performance dynamics and an expanding range of compatible apps and content. High-profile, exclusive video games are heading to VR, people are using panoramic cameras to create videos and photos for the format, and movie companies and platforms are providing ways to watch their content with headsets. And it's not just video games and other forms of entertainment where the new display medium has big potential. VR could eventually bring about world-changing applications in fields like healthcare, manufacturing, and education. 

A man wearing a VR headset.

Image source: Getty Images.

The nine biggest stocks in virtual reality

The following table breaks down the nine biggest publicly traded companies with stocks that can be purchased on U.S. exchanges or through over-the-counter trading by market capitalization that have significant exposure to the VR space. 

Company Market Capitalization Main Areas of VR Business
Microsoft (NASDAQ:MSFT) $1.2 trillion Headsets, platform software, video games, cloud services
Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) $923.76 billion Headsets, streaming video
Amazon.com (NASDAQ:AMZN) $916.15 billion Streaming video, cloud services, e-commerce
Facebook (NASDAQ:FB) $585.32 billion Headsets, social media, video games
Alibaba Holdings (NYSE:BABA) $569.01 billion E-commerce 
Tencent Holdings (OTC:TCEHY) $458.6 billion Social media, video games
Intel (NASDAQ:INTC) $260.35 billion Semiconductors, 360-degree camera technology
Qualcomm (NASDAQ:QCOM) $100.74 billion Semiconductors, headsets
Sony (NYSE:SNE) $83.44 billion Headsets, video games

Data source: Yahoo! Finance. Data as of Dec. 31, 2019. 

1. Microsoft

Microsoft has thrived under the leadership of CEO Satya Nadella, who came on board as chief executive in 2014 and ushered in a subscription-focused model for many of the company's software products and focused on the growth of its Azure cloud-services business. Successes on those fronts have made the software giant one of the best-performing megacap stocks of the past decade. Microsoft's impressive turnaround made it the largest company in the world at the end of 2019 -- and also the largest company with exposure to the VR space. 

VR and AR remain a small portion of the company's business, but Microsoft has ways to benefit if the new, wearable display formats take off. The Windows 10 operating system allows compatible PCs and laptops to access Windows Mixed Reality -- a platform for running VR and AR experiences.Microsoft also partnered with companies including Samsung, HP, Asus, and Dell to build headsets that run on the platform. While the company hasn't manufactured its own VR headset, it is responsible for the HoloLens AR headsets.

Comments from Phil Spencer, the head of Microsoft's Xbox gaming division, suggest that the company isn't seeing much demand from its video game console user base for VR and won't make it a big part of its next-generation system. However, Microsoft does have some exposure to VR video game software -- as its Minecraft video game has been one of the most popular early titles for VR devices and the company has made some smaller games and experiences for Windows Mixed Reality.Microsoft's Mixer social media platform for streaming video game footage could also wind up seeing increased VR integration if the display format gains traction.

If VR and AR take off, it will also probably create increased demand for related cloud-infrastructure services -- which could be a significant positive catalyst for Microsoft's Azure business. Azure is one of the leading cloud services platforms, and server-side computing could help reduce the hardware requirements needed to create VR and AR experiences and process data generated from devices and software applications. 

2. Alphabet

Alphabet's Google division dominates the search engine and digital advertising markets, and these strengths have made it one of the biggest success stories of the Internet Age. As with Microsoft, VR remains a very small component of Alphabet's overall business strategy, but the search leader has been an early mover in the space and has some big platform advantages that make it a company to watch in the world of VR. 

Alphabet made its first push into the consumer VR space in 2014 with Google Cardboard -- a headset fashioned from cardboard that could be cut out and sized to attach to a user's mobile phone screen. The low barrier to entry allowed Google Cardboard to achieve relatively high levels of adoption and put basic VR experiences into the hands of millions of mobile users.

The company then launched the Daydream View in 2016 -- a headset that allowed users to connect a Google Pixel phone or select phones from Samsung, Asus, LG, and Motorola to use as a screen for mobile VR experiences. Alphabet followed this up with the Google Daydream in 2018 -- a standalone VR headset with a built-in screen that was part of Lenovo's Mirage Solo hardware line and used Google's VR platform.

Phone-based VR initially enjoyed a significant adoption advantage in the U.S. market compared to headsets that featured built-in screens, but this design approach has lost favor because dedicated VR headsets tend to offer superior capabilities. Google disabled support for the Daydream View headset with the introduction of its Pixel 4 phones, and many VR experts now believe that the days of the phone-powered VR experience is over.

It looks as if the company is moving away from making phone-based VR hardware, but Alphabet doesn't need to be a big player in the headset space to benefit from the growth of VR. The wide reach of Google's Android mobile operating system, its G Suite online software, and media platforms give it other avenues to benefit from. 

As the biggest platform for online-video streaming, Google's YouTube could become a huge a hub for VR content. YouTube already has a VR app for experiencing content built around the display medium, but there's still plenty of untapped potential. Alphabet's push into the gaming industry with its streaming-based Stadia platform could also give it a position in the VR video game market -- although issues with latency that have been a trouble for streaming gaming platforms will have to improve. 

3. Amazon

Amazon's leadership positions in e-commerce and cloud computing have made it a giant in the tech space. The Jeff Bezos-led enterprise has also built positions in voice-operated smart speakers and streaming entertainment, and its vast resources and willingness to take substantial risks to deliver game-changing innovations suggest it will continue to be one of the world's most influential companies for decades to come. With a wide footprint across the tech sector, Amazon has a range of ways to benefit if the VR market heats up.

The company has been experimenting with integrating VR into its e-commerce platform. The company has developed limited-release kiosks that have users navigating video game-like shopping malls in a VR world and browsing highlighted items for its Prime Day shopping holiday.

Amazon has yet to release any VR shopping apps, but it has released an AR app for its e-commerce platform. This offering hasn't caught on in a big way, but the company will likely be the biggest beneficiary if AR and VR usage for online retail gains ground in the Western market.

Amazon Prime users can't shop in VR yet, but the Prime Video streaming service has a VR mode that puts users in a simulated theater and allows them to watch titles from its library.And while there haven't been any big entertainment releases for the display format from the company, Amazon has reportedly been interested in developing its own VR content.

The e-commerce and cloud-computing leader also owns the Twitch social media platform for streaming video game footage, and viewers can watch their favorite broadcasters stream VR titles or set up their own streaming broadcasts. The company is also rumored to be launching its own streaming-based game platform sometime in the not-too-distant future, and it's possible that VR functionality could be supported. 

Amazon's cloud-computing platform could play an important role in pushing VR forward. Some developers are hoping that some of the intensive computing processes needed to create high-quality VR can be offloaded to the cloud so that these experiences can be accessible on less-powerful computers or mobile devices. Amazon Web Services (AWS) already provides tools to aid in the creation of VR applications.

The company launched Amazon Sumerian in 2018 -- a development suite for making VR and AR apps that can run in web browsers. Sumerian is part of the AWS Management Console and was designed with a range of industrial and creative applications in mind, and its features could be a draw to the company's cloud services for developers looking to build cloud-distributed VR and AR experiences.  

4. Facebook

Like Alphabet, Facebook has used its technology strengths and massive reach for its software to establish a leading position in the digital-advertising market and change how the world connects. The social-media company has a global active user base of more than 2 billion people across its platforms, and it's been looking to expand its digital empire in new directions. VR has been one of the company's biggest growth-and-innovation plays outside its core social media business.

Facebook acquired VR-company Oculus in 2014 at a price reported to be in the $3 billion range. Oculus remains one of the top headset brands, and its offerings have continued to improve and evolve in new directions since the release of the unit's first consumer headset. The initial Oculus Rift headset made its debut in 2016. It was then discontinued in 2019 after the launch of the Rift S hardware, which offers superior image resolution, headset tracking, and other upgrades.

The Oculus Rift S headset with two controllers.

Image source: Oculus.

In 2018, the company also launched the Oculus Go, a VR headset that doesn't need to be tethered to a computer, and it followed up with the Oculus Quest, an updated non-tethered headset, in 2019. According to research from TrendForce, Oculus had a roughly 19.4% share of all VR headsets shipped in 2018 and a 28.3% share of all VR headsets shipped in 2019.

CEO Mark Zuckerberg has been very bullish on the future of VR, even going so far to say that it could emerge as the next revolutionary computing platform. He's also admitted that the company's ambitions in the space have taken longer to come to fruition than initially anticipated, but it seems clear that Facebook remains committed to building a future in VR. 

Oculus headsets now share data directly with Facebook, and the company is incorporating this information into its digital advertising platform and using it to shape the development of new applications for VR. It's also snatching up leading VR developers. 

Facebook purchased Beat Games, the developer behind the popular VR game Beat Saber, at the end of 2019, and comments from the press release announcing the acquisition suggested that more big VR moves are on the way. Facebook is also developing new VR games and experiences internally, and the company is likely to remain one of the most influential players in the VR market for years to come.

5. Alibaba Holdings

Alibaba is China's top e-commerce player and one of its largest technology companies. The e-commerce leader operates two main online retail platforms -- one for consumers to sell goods to each other, and one for consumers buy goods from larger businesses. With this focus, it shouldn't be a surprise that Alibaba is often referred to as "the Amazon of China," and the company has shown interest in building VR and AR use on its platforms.

China is not only the world's biggest online retail market, but it's also the world's biggest VR market in terms of user count.Headsets tend to be significantly cheaper in the country, and that has helped to spur adoption -- even if most of the hardware sold is phone-based and doesn't measure up to the quality and functionality of Facebook's Oculus products or HTC's Vive headsets. Still, the combination of the world's biggest VR installed base and the world's biggest e-commerce market -- it accounts for over 50% of overall spending -- means China is the market where VR-based shopping is most likely to take off, and Alibaba is a resource-rich first mover in the space.

Alibaba launched its first VR shopping experience, Buy+, in 2016. Buy+ allows users to navigate a virtual mall and then select and purchase items. The company then expanded the app to support AR, and it continued to roll out new VR and AR shopping features and options.

A woman wearing a VR headset and touching a Buy Now icon.

Image source: Getty Images.

The Chinese e-commerce leader will probably continue to add features for these new display technologies as their capabilities improve and adoption for compatible hardware increases, and its push into other areas of tech give it additional VR exposure.  Like Amazon, Alibaba has also made a push into the cloud services space. That positions the company to benefit from an increased demand for cloud-based VR data processing and content distribution. Alibaba Cloud has also partnered with Intel to create more advanced VR broadcasting technologies.    

6. Tencent Holdings

Video games and social media applications are two of the biggest catalysts for driving VR adoption, and Tencent has very strong positions in both categories. The China-based tech giant is the world's biggest gaming company and is responsible for hit titles such as League of Legends, Honor of Kings, and Game for Peace. It also owns WeChat, the country's biggest social-media platform and one that functions as a hub for an ecosystem for thousands of mini-apps in addition to its core social network features. That makes Tencent a natural fit for the VR market.

The company has developed games exclusively for VR platforms and built headset functionality into some of its titles, but its exposure to VR in the gaming space extends beyond its own efforts. In addition to making its own video games, Tencent also owns substantial stakes in other large gaming companies -- including Activision Blizzard, Glu Mobile, Ubisoft, and Epic Games -- among many others. It also owns large stakes in gameplay streaming platforms Huya and Douyu, so it could benefit if VR sees increased adoption in that corner of the industry, in addition to having plenty of potential with its own social-media platforms.

The company's CEO, Pony Ma, has expressed interest in building a VR version of WeChat, and the project is reportedly in development. Some AR features have already launched on the platform, and additional AR and VR functionality is likely to be added.

Like other social networks, WeChat is primarily monetized through digital advertising, and the immersive potential of AR and VR suggests big potential in the ad space. Studies have shown that ads on these new display mediums tend to produce much higher engagement than do traditional digital ads.

WeChat has roughly a billion monthly active users and has sky-high levels of engagement, because mini-apps used for everything from ride hailing to ordering food to banking and payment processing are part of the ecosystem. Having so many different third-party apps on the platform also means Tencent can benefit from the VR mini-apps that other company's launch. In addition to its core gaming, social media, and fintech businesses, the technology and media conglomerate is building its position in cloud services. Like other platform providers, Tencent's offering could help pave the way for cloud-powered VR experiences and help process related data.

7. Intel

VR and AR experiences would be impossible without capable semiconductors, and Intel has long been one of the biggest players in the chip space. The company's solutions are used in both Apple and Windows-based computers and mobile devices, and the chipmaker has tailored some of its newer processors to support VR capabilities. 

High-end VR experiences require powerful hardware. To create an immersive experience, most non-phone VR applications render the image you're seeing twice -- once for each eye. VR experiences also tend to be more satisfying when running at faster frame rates and higher resolutions. Failing to render at high resolutions and frame rates can cause users to experience dizziness and nausea because the information your eyes are transmitting to the brain differs so much from what you're used to. Delivering on all of these extra requirements requires a lot of extra processing power, and Intel's newer, more powerful processors have been designed with this mind. 

In addition to designing VR-ready processors, Intel has also dabbled in VR device hardware. The company initially planned to release its own VR headset, in a plan dubbed "Project Alloy," but the product never hit the market.

It looks as if the chip giant's ambitions in the headset-hardware space have been scrapped, but the company has developed high-end 360-degree cameras and software that are used to broadcast professional sports-content for VR devices. Sports organizations including the NBA, MLB, NFL, PGA, and the Premier League have used the company's True View 360-degree technology.

8. Qualcomm

Qualcomm is another leader in the semiconductor space that has significant exposure to VR. The company's processors power a huge section of mobile devices. Even phone-based VR needs to have relatively powerful hardware to deliver the performance conditions for a pleasant and immersive experiences for users, and the company's high-end Snapdragon chips help make mobile VR possible. Qualcomm's chips are also used in many dedicated VR and AR headsets, and some of these solutions have been designed specifically for these new display mediums.

The chipmaker has a presence in the device hardware and software spaces as well. Qualcomm has made its own VR headsets for software developers to work on, and it's working on a consumer-level untethered headset that can also be connected to a computer for improved performance.The company is also partnering with Pokemon Go developer Niantic Labs to develop AR glasses. 

On the software side, Qualcomm offers a toolkit for developers making VR applications that run off its Snapdragon mobile processors. The company is also betting that its software and hardware solutions combined with cloud-computing and 5G internet can bring about huge improvements for mobile-based VR and AR. The company launched its Boundless XR platform (that's short for "extended reality") in March 2019, allowing for processing to be split between a mobile device and a computer or cloud server, and paving the way for VR and AR experiences that are significantly better than what would be possible if a relatively low-power device like a phone had to do all the work. 

9. Sony

Sony built an empire in the consumer-electronics space and used its strengths in product categories such as music players, speakers, and televisions to build a bigger position in the world of entertainment content. Many of the product categories that helped the Japanese tech company grow over the decades have either been phased out or are no longer particularly lucrative, but it has found plenty of success in the world of video games. The company's PlayStation gaming division is one of its most important business segments, and no other large video game company has been more aggressive about pushing into VR.

While Microsoft has been hesitant to pursue VR for its Xbox platform, Sony eagerly jumped into the space -- and it's had impressive success in the market. PlayStation VR launched in 2016, and the company rolled out a slightly updated version of the device the following year. Sony's VR device has outperformed more advanced PC-focused headsets such as the Oculus Rift and HTC Vive even though the PlayStation 4 user base is smaller than the PC user base.

The PlayStation VR currently stands as the best-selling high-end VR device, illustrating that video game content is a big driving factor in adoption for VR. Research from TrendForce suggests that Sony shipped 36.7% of total non-phone VR headsets in 2018 and had a 43% of headset shipments in 2019 -- making it far and away the market leader in the category.

While PlayStation VR wasn't as technologically advanced as other high-end competitors, it has been significantly more affordable for people who already own a PlayStation 4 console, and it offered an overall quality experience with an easy pick-up-and-play approach and with that couldn't be found on other platforms. Sony is developing a new VR headset for use with its upcoming next-generation PlayStation console, and it remains one of the most important companies to watch in the VR space. 

Approach VR with a long view and evaluate stocks holistically

If you're looking to invest in VR stocks, it's important that you make your investment choices based on the overall company and not just the VR components of its business. That's especially true when dealing with the megacap and large-cap stocks profiled on this list.

There aren't many publicly traded pure-play VR companies to choose from, and the resources needed to develop industry-leading hardware and software in the space means the top players tend to be the established giants of technology. The other side of that dynamic, for VR investors, is that these giant companies typically have a wide range of businesses that also have to be evaluated to make sufficiently informed investment decisions.

In many cases, a company's strengths in other businesses will bolster its chances of success in VR, but it's possible that a large company could have a very successful VR unit and still a post poor stock performance if other areas of the business underperform.

It's also important to keep in mind that the VR market is still very young and will take some time to develop. Investing in companies that go on to be big winners in VR could lead to fantastic returns over the long run, but there's still not much visibility on how the market will play out. Investors should approach the space with the understanding that a boom for the technology could be a decade away -- and that outcome isn't guaranteed. VR has tremendous potential, and it could turn into a lucrative market that delivers great performance for investors with well-informed approaches and expectations.