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5 Stocks to Ride the Virtual Reality Wave in 2021 & Beyond

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Virtual reality (VR) is a representation of an artificial environment using cameras, sensors, and software. This technology has been gaining significant traction in recent times driven by its affordability and wide-scale availability.

Technology players such as Facebook’s (FB - Free Report) Oculus, HTC, Sony (SNE - Free Report) , Apple (AAPL - Free Report) , Unity Software (U - Free Report) and Lenovo are making every effort to rapidly penetrate into the growing VR market, which makes them attractive for investors.

Per an IDC report, global spending on AR/VR is expected to grow from over $12 billion in 2020 to $72.8 billion in 2024. Moreover, global spending on AR/VR products and services is expected to witness a CAGR of 54% for the 2020-2024 time-frame.

Moreover, the number of VR/AR devices shipped worldwide is expected to increase to 68.6 million units in 2023. Moreover, AR and VR headsets are projected to have massive sales of over 30 million units annually by the end of 2023 per a Statista report.

Markedly, 52.1 million people in the United States are expected to use VR technology at least once per month in 2020, per an eMarketer report. Faster and more advanced cellular networks, including 5G, are poised to improve VR experiences and create a larger potential market for cloud-based streaming applications.

VR headset manufacturers like HTC’s Vive and Vive Pro, Microsoft’s (MSFT - Free Report) Windows Mixed Reality and Sony’s PlayStation VR provide competitive pricing and features, which is expected to intensify competition.

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Spike in Demand for VR Gaming & VR Videos: A Key Catalyst

VR gaming and VR video make up the largest consumer use cases for VR technology, with $20.8 billion expected to be spent in 2023 on these areas alone.

VR games can be played on standalone systems that can power the virtual reality headsets. Advanced immersive experience and availability of multiple gaming content have fueled the adoption of VR in the gaming industry.

Facebook is investing heavily to develop VR content ecosystem. In September, Facebook rebranded its AR and VR efforts as Facebook Reality Labs. Facebook said it will be spending over $3 billion in the next 10 years on VR.

Launch of VR headset, Rift and Oculus Quest, its first all-in-one headset with no wires and full freedom of movement are a step forward in that direction. On Oct 13, Facebook released Oculus Quest 2, its next-generation VR device, starting at $299, which is expected to boost revenues in the near term.

Additionally, acquisitions have played an important role in deciding this Zacks Rank #3 (Hold) company’s growth trajectory in the VR gaming space. After acquiring Beat Games (developer of popular VR rhythm game Beat Saber) last year, it bought VR studio Sanzaru Games, developer of Asgard’s Wrath, followed by the buyout of Ready at Dawn Studios, developer of Lone Echo games.

Moreover, Facebook Horizon is expected to pose competition for Microsoft’s Minecraft and Second Life.

Meanwhile, Sony is a market leader in VR thanks to the integration of its headset with the Sony PlayStation gaming platform, making it a smooth transition from traditional controller-based gameplay to VR. At CES 2020, SNE revealed it had sold over 5 million PlayStation VR headsets since launch.

Moreover, this Zacks Rank #3 company launched its next-generation gaming console, PlayStation 5 (PS5). With a powerful 8-core AMD Zen 2 processor, 10.3 teraflops of graphics power, gorgeous 4K visuals and an immersive end-user experience. Having an extensive catalog of VR ready games has helped the adoption of the platform.

Meanwhile, Apple’s acquisition of NextVR in April is expected to significantly ramp up its AR/VR efforts. NextVR provides live VR video contents, courtesy of its partnerships with NBA, Wimbledon, Fox Sports et al.

This Zacks Rank #3 company is reportedly planning to release a combined AR/VR headset by 2021 or 2022, followed by a pair of AR glasses in 2022 or 2023. These are focused on gaming, video watching and virtual meetings. The company is also working on a common operating system (apparently called rOS) for AR and VR.

Unity is the most widely used VR development platform for building VR games, applications, and immersive experiences for contemporary VR devices. Notably, over 91% of Microsoft’s HoloLens experiences are made with Unity.

Among the Zacks Rank #3 company’s recent VR standouts is Coco VR, Pixar's first foray into standalone VR filmmaking, made in collaboration with Magnopus. Popular VR games made with Unity include Twisted Realms by Aldin Dynamics and Hidden Temple – VR Adventure by HandyGames.

Coronavirus-led Remote Working Boosts VR Prospects

The potential to boost productivity and safety encourages adoption of VR technology beyond gaming. Remote learning and training with VR have become essential use cases due to the coronavirus pandemic to minimize the risk of exposure.

Facebook has been testing various VR alternatives for working from home in replacement of the physical office, and Infinite Office is the next major step. Facebook's Infinite Office VR experience is a virtual office space, which will enable users to conduct meetings, work on several surfaces, collaborate on projects, and more, all within a digital environment.  

With more businesses considering the benefits of allowing their staff to log in remotely, this could become a key use case that helps boost the use of VR at home.

Promising Future for VR Technology Beyond Gaming

A number of market players consider that the spread of COVID-19 is expected to increase the demand for their VR/AR head-mounted display (HMDs) devices in the healthcare sector.

VR has already been adopted in therapy, where it is used to treat patients with phobias and anxiety disorders. The adoption of VR in healthcare is forecast to grow more quickly – with the value of the market estimated at $336.9 million in 2020 increasing at an average CAGR of 30.7% to reach $2.2 billion by 2024 per a ScienceSoft report.

Unlike other headset developers, Microsoft is focused on the corporate marketplace instead of retail. This Zacks Rank #2 (Buy) company’s Hololens 2 is a mixed reality headset geared exclusively toward enterprise customers, offering holographic interfaces designed to assist with a wide range of procedures, from industrial automation and workforce training to advanced surgery. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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