VR Market: Two Virtual Reality Stocks That Are Cheaper Than Facebook
On the Rise: VR Market
Virtual reality is being touted as the next frontier for software and hardware growth by a lot of companies. Goldman Sachs evaluates that the market could be worth $80 billion by 2025 while Digi-Capital claims that the virgin market will grow from virtually zero now to a $30 billion market by 2020.
A lot of investors are searching for companies with exposure to virtual reality software and hardware to take advantage of that growth. A major example is social media giant Facebook which sells the Oculus Rift, but sales of the VR headset and its associated software will most likely account for less than 10% of Facebook’s sales this year. Facebook is also expensive with a trailing P/E of 72 in an industry that typically trades around 32 times earnings. Consequently, let’s look further than the Oculus Rift to find two less expensive and more reasonable ways to invest in the virtual reality market.
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AMD share values has fallen close to 90% over the last ten years, due to the loss of both high-end graphics cards to Nvidia and x86 chips to Intel. But, shares have risen up more than 50% in the last one year on hopes that the company can turn its business around for the better.
AMD regards virtual reality as a big part of that plan. The company’s line of APUs blends GPUs with CPUs on a single chip, making them perfect all-in-one solutions for gadgets and devices that needs heavy graphical processing power in a slim bundle. Microsoft ‘s Xbox One and Sony’s PlayStation 4 use AMD’s low-power, semi-custom APUs, which are sold through its EESC (enterprise, embedded, and semi-custom) business. These APUs will most likely be used in stand-alone virtual reality headsets in years to come and here AMD has the edge over Nvidia as it tops the market for custom APUs.
At the PC end, AMD has worked alongside some PC manufacturers to produce “Oculus Ready” PCs designed to meet the high system requirements for gaming with Oculus Rift. The sale of add-in boards into these PCs could lift AMD’s market share against Nvidia. On the software side, AMD is offering LiquidVR, a suite of technologies which decreases lags (latency) in VR image processing, which can lead to motion sickness. HTC, Oculus and a lot of other partners have integrated LiquidVR into their devices and software.
AMD stock trades at 0.7 times trailing sales, in comparison to the industry average of P/S ratio of 1.9. This makes it basically inexpensive. AMD’s sales are still drooping, and it isn’t yielding profits but it’s custom SoCs for new consoles, Zen x86 chips and its new Polaris GPU could reverse things.
Sony stock has declined more than 20% for the past one year due to a variety of factors which are a general downturn in Japanese stocks, decelerations in its camera and smartphone businesses and a brand damaging cyber-attack on Sony Pictures. Nonetheless, Sony’s gaming business has remained firm, bringing about a 12% sales growth in fiscal year 2015 and accounting for almost 20% of the company’s top line. The operating income growth of the unit by 84% has also helped Sony post its first full year of profits in 3 years. That growth was boosted as a result of healthy sales of PS4 hardware and software.
Projecting into the remainder of 2016, VR could increase Sony’s gaming unit sales in two ways. Firstly, the PlayStation VR headset for the PS4 will be launched by Sony in October. The stand-alone VR headset will come at a cost price of $399, while a bundle (containing headphones, the PS camera, two move controllers, a demo disc and a game) will cost $500. Merged with the $350 PS4, the PlayStation VR will most likely be the most less costly “high end” VR experience, available for $850. In comparison, the Oculus Rift costs $600 and needs a PC with cost price in the region of $1000.
Secondly, it is expected that Sony will refresh the PS4 with the “PS4.5/NEO” hardware update, which should bring about some additions like 4K support and better support for PlayStation VR games. If Sony can convince a lot of video gamers to purchase both the PS4.5/NEO and the PlayStation VR, its gaming business might get a robust increase in the sales of hardware.
Sony’s stock might bounce back as the VR market matures if its gaming unit continues to push bottom line growth.
Can the VR Market Meet Up With Speculations?
If the VR market’s growth reach industry speculations, AMD and Sony would benefit a lot. However, the market could also struggle to leap beyond hardcore gamers if efforts to extend to more mainstream users like YouTube and Facebook’s 360 degree videos are not as successful as expected. Expensive costs for first generation VR headsets could also suppress the growth of the market.
Based on this, one may think that investors should not buy the stocks of AMD or Sony because they are exposed to the VR market. A better option is to invest only if they have the belief that their main businesses can still grow with or without VR as VR is only a percentage of these two companies.
But still, the stocks of these two companies are very good ways to incorporate VR into a portfolio for a good price. Either way, we advise that you do more research and make your own decision based on all of the information.
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