Virtual reality is a subject that has captured the imaginations of most Americans from their early childhood. Granted, most of us in your youths probably thought that VR would have advanced to a stage where we could feel the air or smell the water in video games, just like we saw in our favorite SciFi movies. However, there are several companies that are working to change this. That’s leading to a lot of interest in virtual reality stocks.
Also, we are at the cusp of launches for the PlayStation 5 and the Xbox Series X. Both of these platforms will use virtual reality extensively. However, they are not the only gaming consoles offering this immersive experience.
Its also important to note here that apart from games, virtual reality is used for several other purposes. Since the 1980s, VR has been used to train pilots, assist in military exercises and help doctors treat patients with post-traumatic stress disorder. According to a research report, the virtual reality market will grow by 21.6% from 2020 to 2027 to reach $62.1 billion. With such a large pie, the biggest players in the industry stand to gain a lot. Keep reading to learn how the following three companies are reshaping our reality.
These are the top virtual reality stocks that you should keep an eye on:
Virtual Reality Stocks: Sony (SNE)
We are less than six months away from the launch of PlayStation 5. Gamers the world over are salivating over battling it out on the console. But it’s arguable that Sony itself is more concerned about its virtual reality headset. It’s estimated that seven million VR headsets were sold in 2019. Sony itself has sold 5 million units of its PlayStation VR, which was launched in 2016.
Sony’s chief executive Kenichiro Yoshida is hoping the novel coronavirus pandemic will lead to an increase in demand for its headsets. A majority of the world is still under strict social distancing regulations. People that are stuck at home need quality entertainment. That’s why PlayStation revenue came to $5.65 billion in its latest quarter, the highest for any April-June quarter. However, that good fortune has was not afforded to the PlayStation VR sets.
Sony owns some of the largest movies, music and gaming companies in the world. The challenge is how the company can offer its products through more immersive platforms. If that becomes a reality, we will see sales numbers for VR sets that are more or less in line with those of the PS5.
Apart from the consumer experience, there were also design issues with the headset that need to be taken care of before the next iteration hits the stores. There is speculation that the PS5 will support two wireless headsets.
SNE stock trades at 10.60x trailing 12-month EV/EBITDA, an approximately 30% discount to the sector median.
In March 2014, Facebook bought virtual reality hardware and software product manufacturer Oculus for $2.3 billion in cash and stock. That put the social media giant in direct competition with Sony and its VR sets. Oculus Quest and Oculus Rift continue to sell well. However, there is room for sales to grow further.
Facebook poured billions of dollars into developing its virtual reality arm and not recouped its investment yet. However, there are positive signs worth mentioning here. At an Oculus event, Mark Zuckerberg revealed that the company had surpassed $100 million in revenue from content sales alone – a hefty sum.
Meanwhile, the Covid-19 crisis led to Facebook putting the thinking cap back on and devising new ways through which virtual reality can impact our world. One of those ways is an augmented workspace that tries to replicate the feeling of an actual workspace and build on its weaknesses. For example, through an Oculus headset, you would have the option to have as many screens as you want. You could also organize your desk to have the essential tabs only so that there is no clutter.
The possibilities are endless once you are talking about VR and the workplace. Facebook’s head of AR/VR Andrew Bosworth shared a short video that shows how the company is experimenting with technologies like Passthrough to allow people to switch between real and virtual worlds.
With all that, I must say that Facebook is not a cheap stock by any means. FB stock trades at 32.78x trailing price-earnings, an almost 110% premium over the sector median.
While all the talk about VR is exciting, you still need companies to power the technology, and that’s where Qualcomm comes into play. The diversified multinational produces Snapdragon XR1 chips, which make for more efficient headsets that can handle artificial intelligence tasks with ease. Facebook launched the Oculus Go with a chip designed by Qualcomm, and Google has also used chips designed by the manufacturer in its products.
If you look at its peer group, QCOM is attractively valued. Shares are trading at 28.82 times forward P/E. The dividend yield is also looking very attractive at 2.44%, and this will only grow, considering the profitability and earnings potential of the company.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. As of this writing, Faizan Farooque does not directly own the securities mentioned above.