At a time when investors are quite skeptical of tech stocks, now might seem like an odd time to jump into virtual reality (VR).
But the massive VR market (which includes connected augmented reality and mixed reality) will be around $252 billion by 2028, up from just $28 billion in 2021.
This market opportunity is too big to ignore, and there are some great companies 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%) there is great potential for VR.
Image source: Getty Images.
New Apple headphones may soon become a reality
The iPhone maker has long been rumored to be working on a mixed reality headset (with some VR and AR capabilities) that could debut as early as next year.
Prominent Apple analyst Ming-Chi Kuo believes the company will launch the mixed reality headset in 2023 and could ship 1.5 million units in the first year.
While the timing remains unclear, some insights have already emerged, including the fact that the company has already shown the device to its board members (hinting at its potential soon).
The company is also reportedly creating a dedicated operating system for the headset, called xrOS, and will launch a separate app store, according to recent Bloomberg reports.
Apple could benefit from the headphones not only from device sales — the headphones are rumored to retail for around $2,000 — but also from in-app sales.
While investors will have to wait a little longer to get their hands on Apple’s headphones, the company’s stock is a good deal right now. Apple shares are trading at 24 times the company’s earnings, compared to a price-to-earnings ratio (P/E ratio) of around 32 at this time last year.
Alphabet’s mobile dominance could translate into VR
Alphabet’s Google has the most VR experience of any company on this list. The company launched its failed augmented reality device Google Glass in 2013 (it still exists in corporate form), and until last year had a blank 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 virtual reality beans, saying the company is working on a new AR device that could launch in 2024.
The company had at least 300 employees working on the secret project at the time, and hired people to build an operating system specifically for the device, called Project Iris.
While the device isn’t available yet, investors should consider the potential of the world’s largest mobile software maker releasing a VR/AR headset.
Google has already proven it can make high-quality devices — its Pixel phones have top-notch hardware and software — and with many of its competitors looking to enter the VR/AR space, Google could use its software prowess to challenge. them in this room.
In addition to VR’s potential, Alphabet also looks more attractive right now, as the company’s P/E ratio is currently 19, compared to a price-to-earnings ratio of around 28 last year.
Nvidia chips could power the future of VR
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 in everything from gaming to artificial intelligence, are the logical choice for creating virtual worlds.
Nvidia has already created developer tools and applications to help businesses and individuals take advantage of the company’s GPUs to create virtual worlds.
Most recently, the company launched its Omniverse Cloud, which it defines as “a suite of cloud services for artists, developers, and enterprise teams to design, publish, operate, and consume metaverse applications.”
One Emergen Research estimate of the size of the AR/VR chip market suggests that it could reach $19.3 billion by 2030, up from less than $3 billion last year.
With Nvidia shares trading at roughly 76 times the company’s earnings, tech stocks aren’t cheap. But Nvidia’s strong position in gaming, leading GPU technology, and commitment to releasing VR tools for developers give Nvidia stock great potential in the growing VR market.
VR is still around the corner
The virtual reality market is still nascent, which means investors will have to be patient as this market grows.
But there’s a shift toward VR among many tech companies right now, and it could eventually become a significant segment for each of those companies.
For example, the VR headset market Apple is targeting is poised to grow from less than 15 million headset shipments this year to nearly 35 million in 2026.
In addition, both Apple and Google’s pursuit of VR software could help each company increase service revenue through in-app purchases. And in Nvidia’s case, VR will allow the company to sell chips in a whole new place, including the metaverse.
The sheer size of the virtual reality market is a good indicator that VR will be big enough to help move this stock needle, but investors will likely have to wait for VR to take shape over the next couple of years before they see the benefits.
