For decades, the demand for virtual reality has been celebrated as the "next big thing" but VR has consistently misled customers with inferior hardware devices and app experiences.
But in recent years, the distance between customer preferences and reality has been narrowed by a flood of refined appliances. The future of the VR market has yet to be written down, but investors who believe in this budding market should consider purchasing these four tech stocks.
There's a guy using a VR headset.
IMAGE SOURCE: IMAGES from GETTY.
1. Sony Business
With over 5 million shipments since its launch in October 2016, Sony's (NYSE:SNE) PlayStation VR is the world's best-selling VR headset. That only represents a sliver of 110 million PS4s from Sony's installed base, but that foothold has inspired developers to create more stand-alone VR games and PS4 game add-on experiences.
The PSVR would be completely compatible with the upcoming PS5, and the next-gen console could be differentiated from Microsoft's (NASDAQ:MSFT) Xbox Series X. Microsoft has already said that its latest console would not emphasize VR experiences, but when combined with the more powerful hardware of the PS5, the PSVR could dazzle more gamers.
Last year, Sony's console gaming company generated 24% of its sales and 28% of its operating income, but its growth is slowing as gamers delay their purchases ahead of the launch of the PS5. A strong VR-supported launch during the holidays could therefore breathe fresh life into this core business.
2. To Twitter
According to SuperData, Facebook's (NASDAQ:FB) Oculus Quest, its second stand-alone VR headset after the Oculus Go, was 2019's second-best-selling VR product, with 705,000 shipments worldwide.
Compared to PCs and tablets, this is still a niche segment, but the ecosystem of Search is increasing steadily. In May, it sold over $100 million in virtual reality content for the Search over the past year, Facebook reported.
Facebook primarily attributed its 80 percent year-over-year leap in "other" sales to strong Oculus Quest demand last quarter. This company, which also produces its portal devices, produced less than 2 percent of Facebook's revenue, which mostly comes from advertising, but as Facebook launches additional VR devices, it could expand dramatically over the next few years.
Facebook could incorporate its key social network, Instagram, WhatsApp, and other services tightly into its Oculus platform over the long term. If that happens, instead of conventional apps, people will start socializing in VR spaces and pave the way for genuinely next-gen social media experiences.
At the F8 meeting, Sean Liu, Facebook's Product Management Officer, will discuss Facebook's VR plans.
SOURCE IMAGE: FACEBOOK
3. The Qualcomm
Qualcomm (NASDAQ:QCOM), the world's biggest mobile chipmaker, produces much of its smartphone industry sales. But it has struggled in recent years with declining demand for smartphones, lower-end and first-party chipmakers' competition, and investigations and fines that question the supremacy of its chipmaking and wireless patents in the industry.
Qualcomm has advanced into other markets, including Internet of Things (IoT) chips, driverless vehicles, drones, and AR/VR headsets, to reduce its focus on the smartphone market.
The Snapdragon VR Mobile Platform from Qualcomm, which optimizes its mobile SoCs (chip system) for VR headsets, currently powers stand-alone devices including the Oculus Quest from Facebook. The mobile VR chips from Qualcomm would not instantly shift the needle and counter its slower smartphone chip sales, but they could gradually gain traction as more businesses launch stand-alone headsets that are not connected to phones or PCs.
4. Technologies at Himax
Taiwanese chipmaker Himax Technologies (NASDAQ:HIMX) produces much of its revenue for smartphones, laptops, displays, and TVs from display driver integrated circuits (ICs). Demand for these chips, especially in the saturated market for LCD panels, has been weak.
Last year, however, 19% of Himax's revenue came from its non-driver business. This secondary business manufactures various components of liquid crystal on silicon (LCOS), LCD timing, and wafer-level optics (WLO), all of which are essential for VR and AR headsets. For the development of smaller camera modules, LCOS chips block light with reflective crystals, LCD timing chips monitor the displays, and the WLO process shrinks optical chips.
Earlier, Himax provided components for Facebook's Oculus Rift and Microsoft's HoloLens developer versions. It's uncertain if these tech giants will continue to use Himax chips in their new consumer-facing products, but in the growing VR market, the chipmaker should remain a major supply chain player.
The Key Takeaways
Investors alone should not purchase Sony, Facebook, Qualcomm, and/or Himax shares for their VR aspirations, as all four companies derive much of their revenue from other core companies. But these four businesses will all benefit from the steady growth of this nascent market over the long term.
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