Top 5 Virtual Reality Stocks to Create Real Wealth

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Virtual Reality Stocks to Make You Rich… or Even Richer!

The market for augmented reality products could surge 130-fold over the next decade with revenue for virtual worlds approaching $400 billion by 2025 for 59% annualized growth! In this video, I’ll use research from Ark Invest and my favorite stock screener to show you how to invest in AR and VR stocks…then reveal the five virtual reality stocks to watch right now! We’re talking investing in augmented and virtual reality, today on Let’s Talk Money!

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Virtual Reality is Becoming Feasible

Nation, after years of false starts, it finally feels like augmented and virtual reality is starting to become commercially viable. Several companies have headsets available for a few hundred dollars and we’re seeing software developed outside the gaming industry where it hit first.

In virtual gaming alone, the revenue opportunity could grow by 21% annually to $350 billion over just the next few years.

That data is from the Ark Invest Big Ideas report, a 112-page research report from Cathie Wood and the team at Ark Funds on the 15 life-changing trends they’re following.

So over the next few months, I’m going to dig deep into these 15 disruptive trends, show you that research, help you analyze it and then reveal the top stocks to buy in each!

I’ll be putting these videos into a special playlist on the channel called Ark Invest Stocks to Buy. Make sure you join the community so you don’t miss any of those videos because these are going to be the stocks you want to be in over the next decade!

How to Invest in Virtual Reality

The problem with this kind of theme investing though is, you know you want to invest in them, in that Virtual Reality trend…you just don’t know what stocks are in the space. For that, we can use to start our search. I’ll go here to the discover tab and one option is to browse these stock collections highlighted, so we see AI and the second one here, Virtual and Augmented Reality.

I want to use the search bar though because a lot of times, you can find more focused stock groups for different segments of that theme. For example, if I start typing virtual the drop-down populates with stocks grouped in VR content creation, glasses, hardware…these smaller segments within that them so if I was trying to build a diversified portfolio around that whole VR supply chain, not just in software, then I could look around some of these.

I’ll keep it general here though and click on Virtual and Augmented Reality stocks and that gives us a list of 73 AR and VR stocks to research for the best picks.

Don’t forget to click through and follow the 2021 Bow Tie Nation portfolio, up 32% already and beating the market by 25% this year.

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Top 5 Virtual Reality Stocks You Should Invest

Researching for our five VR stock picks, I want to look for companies across the supply chain in the theme. That means looking for companies in not just the software side but in equipment and other hardware as well. Ark believes that by next year, consumer-grade AR headsets will turbocharge sales, setting the trend for a $130 billion market opportunity by 2030 from just under a billion currently.

That growth is in addition to the $365 billion market for global gaming that will include a virtual component by 2025. So there is an immense opportunity here not just in the most obvious VR stocks and I want to be ready across that supply chain.

First on our list of VR stocks is Unity Software, ticker U, the $30 billion leader in creating and operating interactive, 3D content for game developers as well as business applications in automotive, construction and film.

I really like Unity as a pure play across the theme because it’s not just in the gaming space but helping companies design applications in every sector. The company reported 53% revenue growth last quarter, representing three consecutive quarters of increasing sales growth, and 2.5 billion in monthly active users.

Management is guiding to $754 million in 2020 revenue, growth of 40% from last year, though it does expect the operating loss to increase on higher expenses. The company isn’t expected to be profitable for a couple years even as revenue keeps growing at that double-digit pace. Shares are pricey here at 40-times on a price to sales basis so this is definitely one where you have to believe in that long-term growth in the AR and VR market opportunity and give it time to grow into the valuation.

Gaming will likely be the first to benefit from the VR theme and few are better positioned than Electronic Arts, ticker EA.

Ark estimates that even on a 20% increase to the cost per hour in gaming through higher monetization, it will still remain a cheaper past-time than social, music, cable TV and news. And on that increase in monetization, the base case could be for a market opportunity of $250 billion by 2025 with the bull case as high as $350 billion. That’s 21% annualized growth.

EA is the leader in gaming with over 2.6 billion players and some of the strongest franchises, especially in sports gaming. The company just announced a massive acquisition of Glu Mobile in February and expected to close in the second quarter. EA is paying $2.1 billion for Glu and its portfolio of mobile games along with a team of 500-plus developers. EA’s focus has been mostly console games so adding Glu and its advantage in mobile brings a lot to the table.

EA reported 12% revenue growth over last year and is expected to post 4% earnings growth on 17% sales growth over the next four quarters. The current quarter is a little light on new title releases and it’s hard to see the company repeat results from an amazing year last year but this is one that will continue to benefit on that shift to gaming and the virtual reality theme. Shares trade for seven-times on a price to sales basis so not quite as expensive as some of the others on our list.

An interesting penny stock on the list, $590 million WiMi Hologram Cloud, ticker WIMI.

WiMi provides a holographic cloud service that can integrate 3D and AR-based images into video footage for advertising and instructional videos. The company operates across two segments in China, augmented reality advertising and AR entertainment.

This one is a recent 2020 IPO so not a lot of financial information or other data though it has booked 29% annualized revenue growth over the last two years. The next earnings report is due out towards the end of April so we should get more clarity on 2021 guidance then.

Shares are trading for 11.8-times on a price-to-sales basis and the growth is definitely there. It has a strong offer in the Chinese educational TV space as well as a project with China Mobile but I’d like to see it expand internationally before committing too much money on this one.

There are a few stocks that seem to come up in multiple big trends lists and NVIDIA Corporation, ticker NVDA, is one of them.

NVIDIA has grown into so much more than just the maker of graphics cards that most investors see. Besides making those cards that power computers and enable the kind of computing-intense programs that are needed in augmented reality and artificial intelligence, it’s also running data centers, software and platforms in many of the biggest trends we’re following.

In AR and VR specifically, it’s got a strong footprint in gaming which booked revenue up 67% on a year-over-year basis and the company’s GeForce gaming platform now has over six million members. It’s also beta testing its NVIDIA Omniverse real-time 3D simulation platform for business applications.

The recently launched RTX 30 series of GPUs offers twice the performance of prior generations and is driving a major upgrade cycle, installed in 70+ laptop models, the most in the company’s history.

Nation, next to, NVIDIA is probably my favorite stock for hitting as many of these big, long-term trends as possible including gaming, VR, AI, self-driving and the cloud…but it doesn’t come cheap. The company reported sales growth of 52% over the last fiscal year and is expected to produce 33% earnings growth over the next year to $13.36 per share. That still puts shares at 40-times on a price-to-earnings basis and 19-times sales.

Shares dropped 17% in the recent selloff which isn’t too bad considering other tech stocks lost twenty- and thirty-percent but this one is definitely exposed to that risk in high PE stocks. Over the next three-to-five and ten years though, this is one of the stocks you want to be picking up on any dips.

Despite the fact that gaming will probably benefit first, I think social VR is where the undiscovered opportunity might be and specifically with shares of Facebook, ticker FB.

Facebook is the leader in social but its 2014 acquisition of VR headset-maker Oculus put it squarely ahead of this theme. Oculus went from just 19% of the VR headset market in 2018 to 28% just one year later, just behind market leader Sony.

And while a lot of that near-term VR opportunity is in gaming, growing to $350 billion annually by 2025, I think the bigger long-term potential is in social interactions and that’s where Facebook excels. Imagine, everything from being to interact with social contacts in an AR/VR environment to interacting with anything in images shares…that’s a potential boom in ecommerce and something nobody is talking about yet.

Even before all this though, Facebook is expected to see revenue 25% higher this year and earnings 12% higher to $11.33 per share. That’s above the 21% sales growth it booked last year.

Shares are now at 27-times earnings and nine-times on a price-to-sales basis, so not necessarily cheap, but not as expensive as we’ve seen them in the past. I do think Facebook could have a tough year as it negotiates with news publishers on a revenue sharing basis as well as antitrust scrutiny from Washington so this isn’t one where you jump in with all your money at once. Invest some of your money now but hold some back for better opportunities when they come along.

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Virtual reality will literally change the world we live in. We’ll be able to have more experiences, enhanced social interactions and just more FUN and everyone is going to want to benefit from that. Which virtual reality stocks do you see will hit the top?

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