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3 Augmented Reality Stocks That Look Like Winners

Tom Taulli

Augmented reality (AR), which involves placing images and videos in a person’s real world (say through a smartphone or some other type of device), may seem like a new technology. But actually the roots go back to the 1960s when computer scientist Ivan Sutherland created a head-mounted system.

Yet it has not been until the past couple years that AR has become a big force. No doubt, a key driver has been the ubiquity and power of smartphones.

So far, many of the applications for augmented reality involve gaming or social media sharing. Hey, just look at the breakout hit, Pokémon Go.

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But it is important to keep in mind that there are emerging business applications. For example, Ikea has an app that superimposes furniture on a visual of the rooms in your home. Mega brands like L’Oreal, Walt Disney Co (NYSE:DIS), Sephora, The Coca-Cola Co (NYSE:KO) and BMW are also leveraging AR to engage their customers.

As for the market potential of AR, it is enormous. According to ResearchAndMarkets.com, the spending is projected to jump from $11.14 billion in 2018 to $60.55 billion by 2023, representing a compound annual growth rate of 40%.

So then, what are some of the interesting augmented reality stocks to consider? Well, here’s a look at three:


Augmented Reality Stocks: Google (GOOGL)

Augmented Reality Stocks: Google (GOOGL)

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At the I/O conference this week, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) rolled out a variety of standout AR technologies. For instance, the company has embedded ARCore in its popular Instant Apps systems. This means a user can use an AR app without having to download it — say by tapping on a product to see how it looks.

Next, Google has added AR to its Maps app. It’s an immersive approach for street-by-street navigation.

And yes, Google also updated its ARCore platform. The system has features to make it possible to use sophisticated 3D manipulation on older devices, and there is support for vertical plane detection, which is critical for advanced AR functions.

Something else: GOOGL stock is trading at a reasonable valuation right now, with the forward price-to-earnings multiple of only 23X. This is pretty good for one of the world’s top tech companies.


Augmented Reality Stock: Micron (MU)

Augmented Reality Stock: Micron (MU)

Source: Shutterstock

Investing in augmented reality chip makers is a way to play the AR trend. The technology requires a tremendous amount of processing of data, which means having sophisticated semiconductors.

So among the augmented reality chip makers, which is the one to consider? I think Micron Technology, Inc. (NASDAQ:MU) is a good pick. In fact, the valuation is dirt cheap. The forward price-to-earnings multiple is a mere 5X.

It’s true that there are concerns that there will ultimately be oversupply of memory chips. But the fears do seem overdone. The industry is essentially an oligopoly –– and the players have remained disciplined with capacity.

In the meantime, there are powerful demand drivers. During the latest quarter, the company posted a 58% surge in revenues to $7.4 billion and earnings came to $3.6 billion, up more than 3X.

But AR is just one of the many growth factors. Keep in mind that MU’s memory chips are critical for other key areas like cloud computing, AI (Artificial Intelligence), smartphones and IoT (Internet-of-Things).


Augmented Reality Stocks: Lumentum (LITE)

Augmented Reality Stocks: Lumentum (LITE)

Lumentum Holdings Inc (NASDAQ:LITE), which is a developer of 3D sensing lasers, has seen its optical communications languish. But it looks like AR could turn things around.

LITE is the supplier for Apple Inc. (NASDAQ:AAPL), allowing for facial recognition for unlocking screens and Animojis for the iPhone X.

But for LITE, the growth may be in the early stages. After all, it seems like a good bet that AAPL will use 3D sensing lasers for other handsets, including the iPads.

According to CEO Alan Lowe, on the latest earnings call: “Our commercial laser segment achieved new record revenues driven by strong demand from customer supply and equipment used in the production of next-generation consumer electronic devices. Devices such as new smartphones and wearables are increasingly using components that require laser-based processing.”

He also mentioned that the market for 3D sensing lasers could exceed $1 billion in the next year or two.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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