Are virtual reality stocks a virtual bust? Or is there a real future for investments in the world of the not real?
Those of you who remember cassette tapes may recall the Memorex commercial that closed with someone sitting in an armchair in front of a stereo. The music coming from the tape was so “real” that it looked like the person was in a wind tunnel. In other commercials, the tape was so hi-fidelity that the music could break a wine glass. These commercials ended with the phrase, “Is it live, or is it Memorex?” Or you may be the movie type, and the concepts of The Matrix were your first hints of a world where what you see isn’t real.
In both of these examples, the characters see and interact with a world that isn’t there. Of course, that’s all fiction, but scientific advances are making it possible to interact in a virtual world. But have we come so far that investors should consider virtual reality stocks? Or would that be akin to putting money into something that isn’t really there?
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What is virtual reality?
Let’s step out of the existential philosophy and define what virtual reality is. Wired magazine defines virtual reality as, “technology by which computer-aided stimuli create the immersive illusion of being somewhere else.” Virtual reality, and its close cousin, augmented reality (tech that superimposes 3D images on actual reality, usually via a smartphone), are perhaps most closely associated with entertainment.
But virtual and augmented reality have applications well beyond gaming. Engineering, healthcare, education, and construction are just some of the industries that use this technology to improve outcomes. What about virtual reality stocks, though? There are plenty of examples of “hot” technologies that were too cumbersome or expensive to gain ground outside of a few niche industries.
The financial reality of virtual reality stocks
It’s worth noting that technology stocks are almost always a good buy. That doesn’t mean you should buy just any tech stock. But as a whole, the sector has been moving up faster than the general market. The Information Technology sector of the S&P 500 has been the index’s top-performing sector for the past 10-year, 5-year, 3-year, 1-year, and year-to-date periods. The outperformance is staggering. Technology has outperformed the Nasdaq by 239% in the last 10 years, 370% over the last five, and 388% over the last three.
And there is more than one way to invest in virtual reality stocks. For example, you could invest in 5G stocks, because only widespread adoption of 5G will make AR and VR fully possible, for several reasons:
- Traffic: According to Cisco, traffic for AR is set to grow by 700% over the next few years. And traffic for VR is projected to increase by 1,100%. For AR and VR to function optimally, they need speeds of 25 Mbps. And right now, the average connection speed—across the globe—is a mere 5.6 Mbps.
- Bandwidth: Put simply, the wider the band, the faster you’ll be able to go. With AR and VR, the screens and equipment need bandwidth that 4G simply doesn’t offer. In the past, we’ve made do with bands below 6 gigahertz (GHz.). 5G will offer bands of up to 300 GHz—a 50-times improvement.
Additionally, whether you realize it or not, you may already have investments in virtual reality stocks. Alphabet (GOOGL), despite the ill-fated Google Glass, is investing in VR. Facebook (FB) bought VR headset maker Oculus back in 2014, and the industry-wide expectation is that shipments of VR and AR headsets will grow to 100 million annually by 2021. Then there’s Microsoft (MSFT); they were using their mixed reality immersive headset, the HoloLens, in partnership with Volvo (VLVLY) as far back as 2016.
And if you want to go a little deeper into the world of VR, you could look at companies like Broadcom (AVGO). Broadcom is a maker of semiconductors, and recently developed the world’s first Wi-Fi 6E client device, the BCM4389. Wi-Fi 6E extends the Wi-Fi 6 standard to support the soon-to-be-operational 6 GHz band with wider 160 MHz channel bandwidths that double Wi-Fi speeds and cut latency in half compared to Wi-Fi 5. The BCM4389 delivers over 2 Gbps of real-world speeds and up to five times better battery utilization, making it an ideal solution for flagship smartphones and future AR/VR devices.
Clearly, there are many avenues to bring virtual reality stocks into your portfolio. Are you ready to invest in the future?
What are your thoughts on VR stocks? Do you think there’s a place for individual VR stocks in your portfolio or are you happy to stick with bigger tech companies?