For all the immersive games you might want to play via virtual reality, gaming the market probably isn’t one of them. The technology has excited many gamers and tech geeks but hasn’t yet yielded substantive investment returns, virtual or otherwise.
“While the idea of virtual reality is exciting, we recommend investors proceed with caution,” says Brett Wilsey, who runs San Diego-based Wilsey Asset Management. “This field is highly speculative and reminds me of the 3-D printing saga.”
In both tech sectors, Wilsey sees a need for the speculation to simmer down. He points to 3D Systems Corp. (NYSE: DDD), which reached $90 per share at the end of 2013, and is now trading for just $13 and change. It’s the kind of slide the company might only hope to reverse if it figures out how to to print money.
As for VR, not even Facebook ( FB) has reached the elusive next level. It paid $2 billion for Oculus, only to see the much-hyped Oculus Rift headset land with a thud after its March 2016 release. That fueled a $200 price drop a year later, while investors wondered whether Facebook CEO Mark Zuckeberg had made an impulsive bet.
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“Facebook’s foray into virtual reality has been disappointing: No breakout or killer application and an experience that leaves a significant fraction of users feeling nauseous,” says Barry Randall, technology portfolio manager for Interactive Brokers Asset Management. “Facebook’s failure thus far has opened the door to major competitors, including Sony ( SNE) and Samsung.”
Yet the problem in evaluating how much virtual reality affects the share price of those companies centers on their size and diversity. Samsung makes everything from smartphones to refrigerators. Sony has dominated consumer electronics for decades. Facebook commands a social media empire with 2 billion users.
“These stocks aren’t pure plays in the area of VR,” say Robert Johnson, president and CEO of the American College of Financial Services in the Philadelphia area. “They are involved in many other activities and the VR aspect of each of these firms is a small portion of what they do.”
Speaking of Sony, it knows all too well what happens a company bets the ranch and the dog on a format that fails to stick. Back in the day, Sony’s Betamax system was the clear frontrunner in the VCR wars. Then other home entertainment companies and video manufacturers backed one of Sony’s rejected prototypes, VHS. That format became industry standard while Betamax, though superior in quality, was relegated to the hinterlands of garage-sale giveaways.
What happened to the VCR could also happen in virtual reality stocks, though it’s far more likely the most polished format would win out.
“The risk is based on whether the current virtual reality standards are on the right path,” says Patrick Kwete, CEO and Founder of Expat, a machine-learning technology company based in Cambridge, Massachusetts. “If vastly different but better technology is found in a completely different direction, then much of the work current frontrunners have done will be irrelevant — and thus their market value would vanish.”
For now, a large part of virtual reality’s growing pains may not revolve around the technology so much as the aforementioned price point. Compared to, say, the early days of smartphone technology, this nascent stage of virtual reality needs to mature a bit before prices level out and drive heightened demand.
[See: 6 Things to Know About Mark Zuckerberg’s Manifesto.]
“Except for Google Cardboard ( GOOG, GOOGL), it’s way too expensive — today,” says Steve Andriole, a business technology professor at Villanova School of Business in the Philadelphia area. “But within a few years, VR will be as affordable as smartphones, or cheaper. We can expect VR headgear to dramatically shrink in size and price, and eventually be embedded in fashion eyewear.”
Meanwhile, some scrappy, small companies already see the big picture. When the headset manufacturer Vuzix Corp. ( VUZI) leapt from penny-stock territory to tech contender in 2013, its stock shot up 7,500 percent in a matter of days. And while the last 12 months haven’t been kind — VUZI is off by a third to $5.90 per share — it’s giving the big dogs a run for their money, says K.C. Ma, director of the George Investments Institute at Stetson University in DeLand, Florida.
“Their headsets are not like the bulky Oculus and HTC headsets,” Ma says. “They’re sleek, lightweight and futuristic.”
He points to VUZI’s first product, the M100, which was so well received by its enterprise customers that it forced Google’s headset off the market.
“This is a $120 million company beating out Google, a $500 billion company,” Ma says, adding that Vuzix could grow its revenue and earnings “by triple digits.” Meanwhile, Intel Corp. ( INTC) has sunk $25 million into Vuzix, “and Intel has a reputation for acquiring companies it invests in within 24 months,” he says.
Ma is also quick to point out that VR isn’t just for immersive gaming, a fact he believes will only bolster its marketplace prospects. “It has applications in every major industry: education, retail, defense, real estate, construction.” And in that way, VR’s rise could resemble the dawn of rich computer graphics — initially conceived to delight video game enthusiasts, yet eventually capable of changing the world.
As for which world virtual reality will deliver to users and shareholders, opinion remains split. Says Wilsey: “While VR may take off, it also may not, which could damage many investors. I would rather be cautious and wait to see if the technology is profitable in the future.”
[See: 10 Best Ways to Buy Tech Stocks.]
Yet is that future so far away? “When Mark Zuckerberg is on the record as saying VR is the next major computing platform,” Randall says, “it’s safe to assume there’s a lot more to come.”
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Seeking Virtues in Virtual Reality Stocks originally appeared on usnews.com
