An Investor's Primer on Virtual Reality (VR) and Augmented Reality (AR)
And here you already thought you knew what "reality" was.
Just as the internet has changed how we can communicate, transact, consume, and produce, so will Augmented Reality (AR) and Virtual Reality (VR) improve, and in some respects, utterly transform our lives. You’ve probably read about these technologies, and if you have seen those clunky and pricey goggles, perhaps you’ve shrugged these technologies off. We are here to tell you that is a bit like thinking a Palm pilot from the 1990s is all that can be hoped for from a smartphone. This technology is just getting started, and the opportunities are enormous.
The information age has long been focused on developing electronic ways to generate, collect, store, use, and access data, but what is happening now, thanks to AR/VR, is truly the stuff of science fiction. Virtual Reality is quickly moving far beyond its early days of parlor trick roller coaster ride experiences and into Iron Man and Minority Report movie territory and beyond, and is doing this via increasingly smaller and more powerful devices with the help of companies such as Microsoft, Nvidia, and Qualcomm, just to name a few.
We aren’t alone in our enthusiasm for this nascent technology. The market for AR/VR is expected to grow, by some estimates, to over $60B by 2027, delivering profound opportunities for investors in a global economy that is facing enormous headwinds to growth from record-high levels of debt, aging demographics, and the economic consequences of a global health crisis. Those headwinds will likely serve as tailwinds to shares of those companies that can grow, despite the less-than-stellar global environment.
So just what is virtual reality?
The term “Virtual Reality” is used as an umbrella term for the following experiences:
Virtual Reality (VR) is an entirely immersive experience that shuts out the physical world. A VR device can transport users into any number of real-world and imagined environments. Examples of portable devices include HTC Vive, Oculus Rift, or Google Cardboard. Theme park 3-D and 4-D rides fall into this category as well. The focus of VR environments has, in the past, been primarily the entertainment and gaming industries, but the emerging, and quite possibly most significant opportunities for VR, are in education and training. Whether it is doctors practicing new surgical techniques, pilots certifying on new equipment (civilian or military), or Walmart staff learning how to work with new equipment before it even arrives at the store, VR environments provide flexibility, scalability, cost savings, and in some cases, much-needed safety.
Augmented Reality (AR) is a slightly different application combining the virtual world with the physical, overlaying digital elements onto a live view, often by using the camera on a smartphone or more frequently, heads up displays embedded in headsets or glasses. Recognizable examples of augmented reality experiences include NFL game graphics, Instagram filters, constellation apps, and the widely popular mobile game Pokemon Go. Augmented reality is already being put to use in real-world corporate environments such as warehouses where workers, using “smart glasses,” are fed real-time information on orders they are filling and the products at which they are looking. Another application of augmented reality is for airport baggage handlers, who are shown the destination, weight, and other data for the luggage and crates at which they are looking. The net effect of this technology is increased efficiency and higher accuracy, thus reducing costs.
Mixed Reality (MR) combines elements of both AR and VR, real-world, and interactive digital objects; think Tony Stark’s workshops in the Iron Man and Avengers movies. Microsoft’s HoloLens best exemplifies mixed reality technology, and potential applications for MR include any kind of engineering or maintenance role. For example, imagine looking at a lawnmower engine, aircraft engine, wind turbine, or any part from any car ever made and being able to interact with a scalable virtual working model of it, being able to see how it functions.
After integrating blockchain technology, you could have access to everything you ever wanted to know about that part, ranging from detailed specifications, to where to locate a replacement, to the serial number of the ingot from which it was machined, and even to GPS coordinates showing from where the raw metal was pulled out of the ground. Some of the applications just described are still in the development stage, but many are currently available.
It took us 67 years to realize the fantasy that was the 1902 French film “Le Voyage Dans La Lune” (“A Trip to the Moon”), and if you have seen the film, I would say that we did a much better job landing. Still, it was only one year after this movie was produced that the Wright brothers took their historic first flight in a heavier than air vehicle.
Similarly, the direct brain connections touted in films like The Matrix series remain the stuff of science fiction. However, while we can’t yet tap into the brain directly, we can manipulate reality through our existing senses of sight and sound and, in the case of some so-called “4-D” rides, smell, touch, and sense of spatial awareness. At its core, this technology has us doing precisely what mom always warned against, “Don’t sit so close to the TV!”
At its cutting edge, scientists are today developing ways to interface our bodies and minds with technology.
Looking at current technology, we have seen solutions as inexpensive and simple as a $15 cardboard cellphone holder (Google Cardboard) and as expensive and complicated as a $3,500 headset (Microsoft HoloLens). Below is a list of companies and descriptions of how they are participating in this industry.
The Engines of Virtual Reality
- NVIDIA (NVDA) - With regards to exposure to virtual and augmented reality, it doesn’t get more “picks and shovels” than NVIDIA. Not only has Nvidia been a leader in chip development, but it also provides software kits for developers. Because it develops base-level hardware and the software that generates those images, it is influential in setting industry standards.
- Intel Corp. (INTC) - Similar to NVIDIA, Intel lives up to its “Intel Inside” motto and is increasingly powering VR headsets produced by several different companies, including Oculus and HTC. Intel has also taken an interest in promoting the use of those headsets in both VR eSports leagues as well as augmented reality experiences for sports in the physical world as well.
- Qualcomm (QCOM) - As headsets become less and less tethered to processing units (desktops, laptops, smartphones), and more reliant on stand-alone connections to cloud-based platforms, the chips powering those connections are gaining in significance, especially with the advent of 5G cellular networks.
Hardware & Software Providers
- Facebook (FB) - By virtue of its 2014 acquisition of virtual reality headset developer Oculus, Facebook is well-positioned to be a market leader in virtual and augmented reality.
- Sony (SNE) - Based on its 5 million units sold, Sony is the clear leader in VR thanks to the integration of its headset with the Sony PlayStation gaming platform, making it a smooth transition from traditional controller-based gameplay to VR. Having an extensive catalog of VR ready games and a relatively bulletproof setup process has also helped the adoption of the platform.
- Alphabet (GOOGL) - While Alphabet took an early step into the mixed reality space with its Google Glass product, it had more success with the decidedly low-tech Google Cardboard platform, which allowed users to effectively strap their phone to their head and create a fairly immersive VR experience. Cardboard morphed into a more durable headset named “Daydream” and was produced from 2016 through 2019. The company is bolstering its efforts in the space by integrating AR technology throughout its Android operating system in Google Maps, Google Lens, and Google Pixel smartphones.
- Apple (AAPL) - As usual, Apple is taking its time entering this new market in a meaningful way. They have been busy making acquisitions such as Metaio, Vrvana, Akonia Holographics, and, more recently, live streaming service NextVR. Despite the company having yet to make any formal announcements regarding new hardware or services, there are plenty of rumors around headset projects and something dubbed “Apple Glass,” which, per the grapevine, are all targeted for 2021 or 2022. In the augmented reality space, Apple has several innovative apps like measure, which superimposes a virtual measuring tape on the phone’s camera, allowing the user to pin a start point and then move across the item to be measured. Other examples include apps by retailers such as Warby Parker and Ikea, which superimpose products on a user’s face or in a room, respectively, taking the shopping experience to a whole new level.
- Microsoft (MSFT) - Unlike other headset developers, Microsoft has focused on the corporate marketplace instead of retail. HoloLens is a mixed reality headset geared exclusively toward enterprise customers, offering holographic interfaces designed to assist with a wide range of procedures, from auto-repair to advanced surgery. Airbus has implemented HoloLens supported training for its aircraft engineers and cabin crews. Other applications include a contract with the Pentagon to supply the U.S. Army with HoloLens headsets for training and combat purposes.
If you think that Virtual Reality, Augmented Reality, and Mixed Reality still aren’t ready for prime time, you would be wrong. The technology is already there and continually improving. The only thing that is missing in the VR and MR space is the same thing that was missing when Apple first launched its App Store, which is all the apps.
As with other revolutionary technologies, not every company is ready to redefine their business workflow, but we have seen a number of companies start to step up and work with providers to become part of the revolution. On the AR side of things, this revolution is well underway. Whether it is blasting alien spaceships, getting a preview of what those new glasses will look like before you buy them or practicing open heart surgery, this technology is quickly being adopted by businesses and consumers alike.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.