At a time when investors are quite skeptical of tech stocks, now might seem like a strange time to jump into virtual reality (VR).
But the massive size of the virtual reality market (which includes augmented reality and associated mixed reality) will reach approximately $252 billion by 2028, up from just $28 billion in 2021.
This market opportunity is too big to ignore and some big companies are investing in hardware and software to make it a reality. here’s why Apple (AAPL -1.46%), Alphabet (GOOG -0.37%) (GOOGL -0.66%)and Nvidia (NVDA -2.25%) have great VR potential.
Image source: Getty Images.
A new Apple headset could 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 early as next year.
Noted Apple analyst Ming-Chi Kuo believes the company will launch its mixed reality headset in 2023 and could ship 1.5 million units in the first year.
Although the timing is still uncertain, some information is already known, including the fact that the company has already shown the device to its board members (an indication of its potential for an upcoming launch).
The company would also create a dedicated operating system for the headset, called xrOS, and launch a separate app store, according to a recent Bloomberg report.
Apple could benefit from the headset not only through device sales – the headset would sell for around $2,000 – but also through in-app sales.
While investors will have to wait a bit longer for Apple’s headphones, the company’s stock is a bargain at present. Apple shares are trading at 24 times the company’s earnings, against a price/earnings ratio (P/E ratio) of around 32 at the same time last year.
Alphabet’s mobile dominance could translate to virtual reality
Alphabet’s Google has the most VR experience of any company on this list. The company released its ill-fated augmented reality device Google Glass in 2013 (it still exists in enterprise form) and, until last year, had a simple VR headset called Google Cardboard.
So what is Google working on now? Some Google insiders reportedly spoke to The Verge earlier this year and spilled some of the VR grains, saying the company was working on a new AR device that could launch as early as 2024.
The company had at least 300 employees working on the secret project at the time and was hiring people to create an operating system specifically for the device, dubbed Project Iris.
Although the device is not yet available, investors should consider the potential of the world’s largest mobile software maker to launch a VR/AR headset.
Google has already proven 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 also looks more attractive at the moment, as the company’s P/E ratio currently sits at 19, compared to a price-to-earnings ratio of around 28 at the same time last year.
Nvidia’s chips could power the future of virtual reality
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 apps to help businesses and individuals take advantage of the company’s GPUs to building a virtual world.
More recently, the company launched its Omniverse Cloud, which it defines as a “suite of cloud services enabling artists, developers, and enterprise teams to build, publish, operate, and experience metaverse apps.”
An estimate of the AR/VR chip market size from Emergen Research indicates that it could reach $19.3 billion by 2030, up from less than $3 billion last year.
With Nvidia shares trading at around 76 times the company’s earnings, the tech stock isn’t cheap. But Nvidia’s strong position in gaming, its leading GPU technology, and its commitment to releasing VR tools for developers give Nvidia stock plenty of potential in the growing VR market.
VR is always around the corner
The virtual reality market is still taking shape, which means investors will need to be patient as this market develops.
But many tech companies are now turning to virtual reality, and it could eventually become an important segment for each of these companies.
For example, the VR headset market that Apple is pursuing is poised to grow from less than 15 million headset shipments this year to nearly 35 million in 2026.
Additionally, Apple and Google’s pursuit of virtual reality software could help each of the companies increase their service revenue through in-app purchases. And for Nvidia, virtual reality will allow the company to sell chips in an entirely new space, including for the metaverse.
The massive size of the VR market is a good indicator that VR will be big enough to help move the needle in these stocks, but investors will likely have to wait for VR to take shape over the next two years before to see the benefits.
