Many investors view the virtual reality (VR) and augmented reality (AR) markets as the next great frontiers for the tech sector.
VR devices, which completely immerse users in digital worlds, could completely change how we socialize, play, and work. AR devices, which augment the physical world with digital projections, could permanently alter how we interact with our surroundings.
Today, we'll take a look at three tech companies that have already established firm footholds in the growing VR and AR markets -- and why they could still have plenty of room to grow in the future.
1. Meta Platforms
Meta Platforms (NASDAQ: FB), the tech giant formerly known as Facebook, still generates nearly all of its revenue from online ads. But as its recent rebranding suggests, Meta will focus on the expansion of its platforms across the "metaverse" -- which merges the physical and digital worlds across VR and AR platforms -- over the long term.
The foundation of Meta's metaverse is its subsidiary Oculus, which sells VR headsets and software. Horizon Workrooms, a new extension of that ecosystem, also challenges Zoom and other video conferencing platforms with VR meetings for up to 16 people represented by digital avatars.
Facebook also recently launched its first pair of smart glasses -- which can be used to take photos, videos, and calls -- with EssilorLuxottica's Ray-Ban, and confirmed the development of Project Cambria, a high-end mixed reality headset that could blend together AR and VR features.
All these projects indicate that Meta's non-advertising businesses, which generated less than 3% of its revenue last quarter, could eventually grow much larger and offset its controversial dependence on targeted ads. It also suggests that in the future, Meta's social media users could visit each other in virtual spaces instead of scrolling through news feeds on PCs and phones.
Five years ago, Snap (NYSE: SNAP) launched Spectacles, its first pair of smart glasses, to make it easier to capture photos and videos for Snapchat.
Earlier this year, Snap unveiled the fourth version of those glasses with integrated AR displays. This new version only targets developers for now, but it could help Snap maintain its lead against Facebook's new smart glasses.
More than 200 million of Snapchat's users already interact with its AR lenses, filters, and games every day. Snap's users have created over 1.5 million lenses with its Lens Studio, and it's expanding that ecosystem's reach by signing AR partnerships with companies like Bumble, which integrates Snapchat's AR lenses into its video chats; Disney, which blends its AR lenses into its theme parks; and brands like Ralph Lauren and Estée Lauder MAC Cosmetics, which both use its lenses to power AR-driven shopping experiences.
During Snap's investor day in February, chief technology officer Bobby Murphy said that its Landmarker and Local Lenses features, which enable users to interact with AR filters placed on top of real-world locations, were the precursors to "large-scale, robust 3D mapping which will someday allow anyone, anywhere, to engage with AR connected to any physical space."
That's an ambitious claim, but Snap is already in the process of changing how companies market their products and services with AR lenses. Over the long term, Snapchat could digitally alter how consumers view the world.
Vuzix (NASDAQ: VUZI) is a rare "pure play" on the growing AR market. The eight-year-old company sells various types of AR headsets for the enterprise, original equipment manufacturer (OEM), and mainstream consumer markets.
Its M-series AR headsets are primarily used by remote workers, healthcare professionals, and the military. Its Blade AR headsets, which are tethered to Amazon's Alexa and Alphabet's Google Assistant, target home users.
Vuzix is a small company, but its revenue surged from just $2.1 million in 2016 to $11.6 million in 2020. Demand for its M-series headsets skyrocketed throughout the pandemic, and analysts expect its revenue to grow another 36% to $15.7 million this year. Vuzix isn't profitable yet, but its practical approach to the AR market -- which focuses on addressing the specific needs of certain industries -- gives it an early mover's advantage in the enterprise AR market that Facebook and Snap have largely ignored.
Vuzix faces competition from Microsoft's HoloLens and Google's enterprise-facing version of Google Glass, but enterprise customers that don't want to be tethered to those tech giants might prefer to stick with Vuzix's devices. Therefore, investors looking for a small-cap AR play with plenty of room to run should take a closer look at Vuzix.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun owns shares of Amazon, Bumble Inc., Snap Inc., Walt Disney, and Zoom Video Communications. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Meta Platforms, Inc., Microsoft, Walt Disney, and Zoom Video Communications. The Motley Fool recommends Bumble Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.
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