In this article, we will take a look at the 10 best virtual reality stocks to buy. You can skip our comprehensive analysis of these companies and go directly to the 5 Best Virtual Reality Stocks to Buy.
Game developers often steal all the attention in conversations around virtual reality but there is more to the new technology than use as just an entertainment product. Virtual reality gear is also important for remote assistance, training, mental health, education, and even fashion. The COVID-19 pandemic has accelerated advances within the industry that was already valued at over $17 billion in 2020. This figure is expected to balloon close to $200 billion by the middle of this decade as the VR industry grows at a compound annual growth rate of a scary 48%.
There is no doubt that there is a lot of money in VR offerings cloaked in gaming experiences, but innovative uses for the VR gear have finally grabbed the attention of big technology companies around the world. Facebook, Inc. (NASDAQ: FB) has started experimentation work on a VR product that will track hand movements by picking up signals from the nervous system and use that data to allow people to move about in virtual spaces. Facebook, Inc. (NASDAQ: FB) is working on this and other VR projects through Oculus, a firm it purchased back in 2014.
Apple Inc. (NASDAQ: AAPL) is reportedly working on a VR headset that will be significantly lighter than its competitors and will use ultra high-end displays, eye-tracking technology, and more than a dozen cameras to track hand movements and capture footage for display on the VR product. Apple Inc. (NASDAQ: AAPL) does not plan to ship the product for another year, but is planning to make another VR product to follow the headset into the market. There are also rumours that Apple Inc. (NASDAQ: AAPL) is facing hardware-related delays in the final production of the headsets.
Microsoft Corporation (NASDAQ: MSFT) has set up a mixed reality and artificial intelligence lab in Zurich that is exploring the use of new technology for a variety of purposes. For example, Microsoft Corporation (NASDAQ: MSFT) aims to use VR to improve robotic interactions through the use of cloud-based services, and is developing new headsets that offer what the firm calls computer vision to customers, an information system designed to make multitasking easier and faster for the average individual. We talk more about Microsoft Corporation (NASDAQ: MSFT)'s foray into VR later in the article.
The use of virtual reality in everyday products like automobiles and electronic devices has enabled it to make the experience of playing games or watching movies very exciting. This sector of the industry is expected to drive the growth of virtual reality moving forward. The COVID-19 pandemic has also changed how businesses operate, leading to a rise in remote working, a trend expected to outlast the virus crisis. This will lead to increased interest in remotely managed professional training programs made easier through VR products. However, since the technology is still evolving, investors need to be careful of downsides as well.
New technology is not accepted easily by either the market or the populace. The fintech world is a prime example. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of 10 best virtual reality stocks to buy.
Best Virtual Reality Stocks to Buy
10. NVIDIA Corporation (NASDAQ: NVDA)
Number of Hedge Fund Holders: 88
NVIDIA Corporation (NASDAQ: NVDA) is a Santa Carla based technology firm. It was founded in 1993 and is placed tenth on our list of 10 best virtual reality to buy. The company is one of the leading hardware brands whose products power virtual reality devices around the world. The general processing units, drivers, and software development kits made by the firm are at the forefront of virtual reality breakthroughs, and the company also has a virtual reality technologies division that offers gamers, developers, and professionals with virtual reality solutions.
Invest advisories Goldman Sachs and Raymond James are bullish on NVIDIA Corporation (NASDAQ: NVDA) stock as a global chip shortage drives up the prices of products the tech firm makes for use in an array of electronic devices, including computers used for cryptocurrency mining and virtual reality gear.
At the end of the fourth quarter of 2020, 88 hedge funds in the database of Insider Monkey held stakes worth $8.6 billion in NVIDIA Corporation (NASDAQ: NVDA), up from 82 the preceding quarter worth $7.6 billion.
9. Alibaba Group Holding Limited (NYSE: BABA)
Number of Hedge Fund Holders: 156
Alibaba Group Holding Limited (NYSE: BABA) is a Hangzhou-based multinational technology firm. It is one of the largest technology firms in the world and has significant stakes in the virtual reality business. Since it operates a large retail business, the group has tapped virtual reality gear to introduce 3D online shopping experiences for consumers who want the premium outgoing feel from the comfort of their homes. It has also invested heavily in research on VR and believes the technology is on track to become as common as television.
On April 12, investment bank HSBC maintained a Buy rating on Alibaba Group Holding Limited (NYSE: BABA) stock with a price target of $300 and said that even though the company was facing regulatory probes in China, the bank expected it come through them with minimum damage, citing a recent ruling in this regard as an example.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in the firm with 13.9 million shares worth more than $3.1 billion.
Our calculations show that Alibaba Group Holding Limited (NYSE: BABA) ranks 7th in our list of the 30 Most Popular Stocks Among Hedge Funds.
Davis International Fund, in their Q4 2020 investor letter, mentioned Alibaba Group Holding Limited (NYSE: BABA). Here is what Davis International Fund has to say about Alibaba Group Holding Limited in their Q4 2020 investor letter:
"The current focus of the Chinese government is on e-commerce and consumer finance, impacting companies such as e-commerce leader Alibaba, resulting in the delay of the ANT Group IPO. Our expectation is that while a company like Alibaba will have to eliminate business practices such as exclusive supplier arrangements, it will maintain its leading position in the thriving Chinese e-commerce sector due to its brand, scale, network effects and ability to innovate.”
8. Unity Software Inc. (NYSE: U)
Number of Hedge Fund Holders: 32
Unity Software Inc. (NYSE: U) is a San Francisco-based video game and software development company. It was founded in 2004 and is placed eighth on our list of 10 best virtual stocks to buy. The firm has a separate unit dedicated to software services for virtual reality gear. The company claims that its software is used more than any other platform to power virtual reality games globally, specially in battle-related gaming. The firm has a high-def render pipeline, an interaction toolkit, and a spatial audio and particle system for virtual reality solutions.
Unity Software Inc. (NYSE: U) earned a Buy rating from investment bank Goldman Sachs on March 15 with a price target of $126. The bank projected long-term growth for Unity based on the low prices it offered for game development. The bank also noted that the firm was in the initial stages of expanding into non-gaming businesses.
At the end of the fourth quarter of 2020, 32 hedge funds in the database of Insider Monkey held stakes worth $11 billion in Unity Software Inc. (NYSE: U), down from 35 in the preceding quarter worth $6.7 billion.
7. Alphabet Inc. (NASDAQ: GOOG)
Number of Hedge Fund Holders: 157
Alphabet Inc. (NASDAQ: GOOG) is a California-based multinational technology company. It is ranked seventh on our list of 10 best virtual reality stocks to buy. The company has integrated virtual reality into many of the products it owns, like Google Lens and Google Maps, as well as a host of other internet-based offerings. Google is investing in virtual reality software to power more experiences, like taking virtual tours of museums and tourist destinations from the comfort of the home through the use of Google’s platforms.
Alphabet Inc. stock rose more than 4% on April 28 as it reported quarterly earnings that had jumped compared to the previous year because of digital advertising revenue. Investment bank Barclays boosted the price target on the company to $3,000 from $2,500, while another advisory, Evercore, raised its target to $2,825, terming Google a ‘COVID-winner’.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm TCI Fund Management is a leading shareholder in the firm with 2.9 million shares worth more than $5.1 billion.
"Alphabet Inc (GOOG), one of the largest and most talked about companies on earth, currently presents an incredibly attractive opportunity, especially relative to its risk. While some may be skeptical that an emerging fund such as ours could have any edge at all in owning GOOG, that is precisely our edge.
In other words, our ability to own GOOG without having to manufacture a variant view is one of the many competitive advantages we have compared to some larger, more institutionalized peers who may find it difficult to tell LPs that a vanilla company like GOOG is one of their favorite investments.
We are proudly running a relatively unconstrained strategy, and appreciative of our LP base that gives us the flexibility to look for the best risk / reward wherever it may lie. We also feel comfortable admitting that sometimes the most obvious bargains do hide in plain sight. In fact, despite nearly doubling since we first wrote it up in our Q2’18 letter, GOOG is just as exciting at current levels as it was back then.
Since pretty much everyone knows what GOOG does in its core business, there is no need to re-hash it here. However, I find it wild that we can own the most dominant advertising business on earth for less than 23x next year’s earnings (21x ex-cash). Typically, dominant, mature, global businesses that grow revenues in-line with GDP trade at higher multiples than this. Thus, given the relatively reasonable current multiple, I do not see much risk of long-term multiple compression here.
Yet, GOOG’s core advertising business, which drives all its profitability, actually grows much faster than global GDP. This is a business that has powerful secular tailwinds at its back, as advertising budgets continue to shift towards digital formats away from traditional ones. I expect this trend will continue for a long time and that current shareholders stand to benefit from the attractive growth.
Even better, GOOG’s earnings are not only growing faster than the average company, but they are also being weighed down significantly by its cloud business and various other bets. It is highly likely that these current drags on profitability will at some point generate significant earnings and be worth hundreds of billions of dollars.
Additionally, the company’s balance sheet is pristine. GOOG is sitting on over $100 billion of net cash. Many investors may argue that this is not a new dynamic. After all, the company has been building cash for a long time. However, the combination of GOOG’s new CEO (who effectively took the reins to start 2020) and well-regarded CFO (since 2015) are slowly instilling more focus and financial discipline on the company. Costs are being watched carefully, especially within other bets, and the pace of capital return has increased significantly of late. In fact, the pace of buybacks has more than tripled to greater than $30 billion in 2020, up from less than $10 billion in 2018. I expect this upward trend of buybacks to continue.
Looking out to 2025, it is not difficult to imagine a core Google Services segment that generates close to $100 billion of annual net income, after corporate costs. If we add to that cloud, other bets and interim cash generation we could be looking at a company worth $3 trillion by the end of 2024, which would make GOOG more than a double from current levels. Not bad for a boring, well known mega-cap.”
6. Lumentum Holdings Inc. (NASDAQ: LITE)
Number of Hedge Fund Holders: 39
Lumentum Holdings Inc. (NASDAQ: LITE) is a San Jose-based telecommunications firm that has significant stakes in the technology sector. The company is the prime partner of China-based Huawei Technologies, and as signs of a thaw in a trade war between the US and China become more apparent, there is much to encourage Lumentum for the rest of the fiscal year. Huawei, which has investments in virtual reality, has largely resumed business with US companies and is set to make a strong comeback after a difficult two years.
On March 26, investment bank Raymond James rated Lumentum Holdings Inc. (NASDAQ: LITE) a Strong Buy after the deal the company was making for the purchase of telecom equipment maker Coherent fell through. The bank said it also based the upgrade on the 3D sensing telecom tech being developed by Lumentum Holdings Inc. (NASDAQ: LITE).
At the end of the fourth quarter of 2020, 39 hedge funds in the database of Insider Monkey held stakes worth $545 million in the firm, down from 40 in the previous quarter worth $501 million.
Click to continue reading and see 5 Best Virtual Reality Stocks to Buy.
Disclosure: None. 10 Best Virtual Reality Stocks to Buy is originally published on Insider Monkey.