Virtual reality (VR) is one of the hottest trends in tech right now, thanks to the growing popularity of concepts such as the metaverse as well as the utility of this technology in popular niches such as video gaming.
Mordor Intelligence estimates that the virtual reality market could clock a compound annual growth rate of 34% through 2026, pointing toward a sharp increase in sales of VR hardware. More specifically, VR device shipments are expected to jump to 112.6 million units in 2026 compared to just 13.5 million units in 2020.
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Investors can take advantage of this fast-growing market through Meta Platforms (META 0.43%) and Apple (AAPL -0.35%). While Meta is already taking advantage of the VR opportunity, Apple is rumored to be joining the fray in 2022. Let's see why investors looking to buy VR stocks shouldn't overlook these tech giants.
1. Meta Platforms
Social media giant Facebook announced in October last year that it would be rebranding itself as Meta Platforms to reflect its focus on developing the metaverse. This concept is aimed at helping people collaborate in a three-dimensional virtual world to work, study, play, or work out, among many other activities.
Meta points out that virtual reality will be a key building block of the metaverse, which explains why the company will be investing significantly in this technology in the future. Meta CEO Mark Zuckerberg said on the October 2021 earnings conference call that the company is "building multiple generations of our VR and AR products at the same time," and it was on track to invest $10 billion on these technologies last year.
Meta plans to increase its investment in this area in the long run, so it won't be surprising to see it dominate a market where it already has a head start. For instance, Meta leads the VR headset market by a huge margin. Counterpoint Research estimates that Meta's Oculus VR headset controlled 75% of the market in the first quarter of 2021, recording a massive increase from its market share of 34% in the prior-year period.
This puts Meta in a terrific position to benefit from the augmented reality (AR) and VR headset market that's expected to grow nearly tenfold in the next four years. Counterpoint Research estimates that AR/VR headset shipments could jump to 105 million units in 2025 from an estimated 11 million units last year.
Meta is pulling out all stops to capture this massive growth. The company is reportedly working on the next generation of its Oculus Quest VR headset projected to hit the market in 2023. However, analysts expect Meta to launch another VR headset in the second quarter of 2022 that could give users a more immersive experience.
What's more, Meta has partnered with Ray-Ban parent EssilorLuxottica to offer smart glasses. The two companies launched the Ray-Ban Stories series of smart glasses in September 2021 at a starting price of $299. This could unlock another opportunity for Meta as Mordor Intelligence expects the smart-glass market to generate almost $8 billion in revenue by 2026 compared to $3.9 billion in 2020.
All this indicates that Meta could turn out to be a top VR stock in the long run. Its annual earnings could grow faster than Wall Street's projection of 21% for the next five years as the VR market continues to expand. That's why investors looking to make the most of this market should consider buying Meta stock as it is trading at 24 times trailing earnings -- a discount to the S&P 500's multiple of 28.5.
2. Apple
Apple is a consumer electronics giant that sells popular products ranging from iPhones to iPads and MacBooks. So, it is not surprising to see reports of the tech titan entering the AR/VR headset market.
Noted Apple analyst Ming-Chi Kuo said in December 2021 that Apple could launch its first-generation headset in 2022, followed by another device in the second half of 2024. Naturally, Apple hasn't officially confirmed the existence of such a device, but there are further indications that the iPhone maker looks set to make the jump into the lucrative AR/VR headset space.
Citing anonymous sources aware of Apple's headset development plans, Bloomberg reported on Jan. 14 that the company's first mixed reality headset -- supporting both AR and VR -- could hit the market in 2023 instead of this year. The report points out that Apple was originally planning to reveal the device this year at the Worldwide Developers Conference in June. Development challenges faced by the company have probably led it to delay the release by a few months.
While that may be a near-term setback, the important thing to note here is that there is now more evidence of Apple being in the mix for AR/VR headsets. It is also worth noting that Apple is working on a mixed-reality device combining both AR and VR. This could be an important selling point for Apple's device since it can give users the best of both worlds.
Apple is reportedly looking to price its headset at $2,000 at least. That may seem expensive, but investors should note that the average selling price (ASP) of an AR headset stood above $1,800 in 2020, while that of a VR headset was $357. So, Apple's mixed-reality headset could find takers since consumers won't have to spend on two different devices.
Apple reportedly expects to sell 7 million to 10 million units of its headset in the first year, which indicates that this could turn out to be a multibillion-dollar product for the company given the estimated price point. Additionally, it won't be surprising to see Apple achieve its sales target, given the massive iOS ecosystem with an installed base of 1.65 billion devices at the beginning of 2021.
Apple is in a terrific position to cross-sell its anticipated headset to a huge customer base, and that could make it a top tech stock to benefit from the VR space.
