At a time when investors are pretty skeptical of tech stocks, now might seem like an odd time to jump into virtual reality (VR).
But the massive VR market size (which includes related augmented reality and mixed reality) will be worth an estimated $252 billion by 2028, up from just $28 billion in 2021.
That market opportunity is too big to ignore and there are some great companies investing in the hardware and software to make it a reality. Here's why Apple (AAPL 0.41%), Alphabet (GOOG -1.44%) (GOOGL -1.59%), and Nvidia (NVDA 1.69%) have great VR potential.
Image source: Getty Images.
A new Apple headset may soon be a reality
The iPhone maker has long been rumored to be working on a mixed-reality headset (some VR and AR capabilities) that could debut as soon as next year.
Noted Apple analyst Ming-Chi Kuo thinks the company will launch its mixed-reality headset in 2023 and could ship 1.5 million units in the first year.
While the timing is still uncertain, some insights have already become known, including that the company has already shown the device to its board members (an indication of its potential for a launch soon).
The company is also reportedly creating a dedicated operating system for the headset, called xrOS, and will launch a separate app store, according to recent reporting by Bloomberg.
Apple could benefit from the headset not just through device sales -- the headset is rumored to sell for around $2,000 -- but also from in-app sales.
While investors will have to wait a little while longer for Apple's headset, the company's stock is a good deal right now. Apple's shares are trading at 24 times the company's earnings, compared to a price-to-earnings (P/E ratio) of about 32 this time last year.
Alphabet's mobile dominance could translate to VR
Alphabet's Google has the most VR experience of all the companies on this list. The company launched its ill-fated augmented reality device Google Glass back in 2013 (it still exists in enterprise form) and, up until last year, had a bare-bones VR headset called Google Cardboard.
So what's Google working on now? Some Google insiders reportedly spoke to The Verge earlier this year and spilled some of the virtual reality beans, saying that the company is working on a new AR device that could launch as soon as 2024.
The company had at least 300 employees working on the secretive project at the time and was hiring people to create an operating system specifically for the device, dubbed Project Iris.
While the device isn't available yet, investors should consider the potential of the world's largest mobile software maker releasing a VR/AR headset.
Google has already proved that it can make high-quality devices -- its Pixel phones have top-notch hardware and software -- and with so many of its competitors looking to enter the VR/AR space, Google could use its software prowess to challenge them in this space.
In addition to its VR potential, Alphabet is also looking more attractive right now as the company's P/E ratio is sitting at 19 right now, down from a price-to-earnings ratio of about 28 this time last year.
Nvidia's chips could power the VR future
While Apple and Google are betting on devices and software in the VR space, Nvidia has a unique opportunity with its graphics processors.
The company is already a leader in the GPU market, and the company's high-end graphics processors -- used for everything from gaming to artificial intelligence -- are a logical choice for creating virtual worlds.
Already, Nvidia has created developer tools and applications to help companies and individuals take advantage of the company's GPUs for virtual world-building.
Most recently, the company launched its Omniverse Cloud, which it defines as a "suite of cloud services for artists, developers and enterprise teams to design, publish, operate and experience metaverse applications."
One estimate for the AR/VR chip market size from Emergen Research said it could reach $19.3 billion by 2030, up from less than $3 billion last year.
With Nvidia's shares trading at about 76 times the company's earnings, the tech stock isn't cheap. But Nvidia's strong position in gaming, its leading GPU tech, and its commitment to releasing VR tools for developers gives Nvidia's stock lots of potential in the growing VR market.
VR is still around the corner
The virtual reality market is still taking form, which means investors will need to be patient as this market grows.
But there's a shift happening right now among many technology companies toward VR, and it could eventually become a significant segment for each of these companies.
For example, the VR headset market that Apple is pursuing is poised to increase from less than 15 million headset shipments this year to nearly 35 million in 2026.
Additionally, both Apple and Google's pursuit of VR software could help each of the companies expand their services revenue through in-app purchases. And for Nvidia, VR will allow the company to sell chips in an entirely new space, including for the metaverse.
The massive virtual reality market size is a good indicator that VR will be large enough to help move the needle for these stocks, but investors will likely have to wait as VR takes shape over the next couple of years before they see the benefits.
