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3 Chip Stocks to Profit From the VR Boom

Man using a VR headset.

Virtual reality (VR) could turn out to be a big moneymaker for chipmakers as the technology goes mainstream. Some estimates pin the size of the VR hardware market at almost $16 billion in 2020, opening a substantial opportunity for chip specialists NVIDIA (NASDAQ: NVDA) , Intel (NASDAQ: INTC) , and Qualcomm (NASDAQ: QCOM) , which are attacking different aspects of this market.

Let's take a look at how these three chipmakers are setting themselves up to take advantage of a VR boom.

Man using a VR headset.

Image Source: Getty Images

NVIDIA: Targeting professional GPUs

NVIDIA is harnessing the power of graphics processing units (GPUs) to attack the VR opportunity. More specifically, the graphics specialist has been churning out professional-grade graphics cards under its Quadro line-up that will help users create VR content in a fast and easy way.

Earlier this year, NVIDIA revealed two VR-ready GPUs -- the GP100 and P4000. The flagship GP100 Quadro GPU is said to be 18 times faster than a central processing unit (CPU) while creating photorealistic images thanks to 16 GB of high-bandwidth memory.

What's more, NVIDIA's Quadro GPUs are already being deployed by the likes of Microsoft in the cloud to power high-end graphics applications. In May, Microsoft announced that Azure cloud service users will be able to run Quadro-powered applications using larger image resolutions and multiple displays.

But the reach of the Quadro GPUs isn't limited to the cloud. Lockheed Martin , for instance, is ordering more of NVIDIA's VR-ready GPUs to recreate U.S. Navy ships in virtual reality for personnel training purposes, while retailer IKEA is using the technology to help consumers remodel their kitchens.

Not surprisingly, NVIDIA's professional visualization business is starting to gain traction thanks to the uptake of its professional-grade GPUs. Last quarter, the segment's revenue jumped 8% year over year. But investors can expect stronger gains as one estimate says PCs could generate $6 billion worth of VR content by 2020, up from less than $100 million in 2015. This will create the need for more GPUs, which is great news for NVIDIA investors given its dominant position in this space.

Qualcomm: Going after head-mounted displays

While NVIDIA is focusing on VR content creation, Qualcomm has decided to tap the content consumption market as it tries to diversify away from smartphones. Head-mounted displays (HMDs) enable the VR experience by delivering immersive visuals straight to the user's eyes and Qualcomm has decided to take a crack at this space.

HMD adoption could go through the roof as IDC data indicates that VR headset sales could jump to 61 million units a year by 2020 as compared to just 10 million units in 2016. Qualcomm is trying to push the envelope in head-mounted displays by coming up with a more convenient VR experience.

Existing VR headsets are tethered to a PC to draw power, limiting the freedom and the range of motion of the user. But Qualcomm is taking things one step further by cutting the cord and allowing users to interact with VR content using their hands, which leads to a more immersive experience.

The chip giant displayed its technology earlier this year through its Snapdragon 835 VR developer kit headset. But Qualcomm isn't going to make its own head-mounted displays, as the developer kit is currently shipping to app developers for creating VR content. However, Qualcomm's HMD accelerator program will enable VR makers to use its developer kit as a reference point to make their own devices.

This could boost sales of Qualcomm processors if headset makers decide to use its reference design to churn out HMDs, which could be a big deal in the long run given the projected growth in HMD shipments.

Intel: Trying to be everywhere

Intel is trying to attack both the VR content creation and consumption markets. The chipmaker has already launched CPUs powerful enough to create VR content. Last year, Intel released the Extreme Edition Core i7 Broadwell-E processor, claiming that it can render ultra-high-definition (commonly called 4K) videos 35% faster than its previous offering.

Now, 4K video is the basic requirement for VR content, so Intel is giving enough power to users for this purpose. What's more, the company's CPUs could get a serious performance bump later this year with the introduction of next-generation chips.

But Intel is trying to grab a greater piece of the VR opportunity through its Project Alloy virtual reality headset, an all-in-one offering with embedded sensors, input controls, and cameras. Just like Qualcomm, Intel has done away with the cord connecting the headset to the PC, giving users unrestricted freedom to explore the VR world.

Additionally, Intel is collaborating with Microsoft to optimize Windows-based content for the Alloy headset, which could spur its adoption given . On the other hand, Intel is going the Qualcomm way by giving away the Alloy headset's hardware design and application programming interface to developers and OEMs (original equipment manufacturers), which might significantly increase its chip sales in the long run as VR headset adoption increases.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nvidia and Qualcomm. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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