Is Meta Platforms, Inc. (META) the Best Augmented Reality Stock to Buy Now?

We recently compiled a list of the 10 Best Augmented Reality Stocks To Buy Now. In this article, we are going to take a look at where Meta Platforms, Inc. (NASDAQ:META) stands against the other augmented reality stocks.

Augmented reality (AR) is a technology that enhances our perception of the real world by overlaying digital elements through devices, adding to your existing environment. There are various ways to describe AR, from spatial computing to holographic projection, but its practical applications define its true value. A notable example of an AR device is the HoloLens, a holographic computer that enables users to interact with digital content within the real world, leading to its growing adoption across various industries such as education, manufacturing, and healthcare.

AR/VR Startups

Despite its applications and prospective growth, the AR space seems to have lost favor with venture capitalists, with investments declining due to disappointing adoption rates for the gear and leading metaverse platforms. Even the launch of the Vision Pro headset earlier this year, promoted as a "spatial computing" device, didn't significantly shift the mood. Reports suggest that demand for the $3,500 device is cooling, prompting the maker to lower its shipment forecast.

Similarly, the investment climate in the startup sector remains cold, with only about $464 million invested this year in seed through growth-stage funding for AR, VR, and metaverse-related companies. This sets 2024 on course to reach the lowest funding total in years. Most startups that raised large financings during the peak in 2021 haven't secured new rounds since. However, despite the slowdown, some notable deals have still occurred, with the largest AR-related round this year going to Rokid, a maker of augmented reality glasses, which raised $70 million in January. Another notable investment was in Beijing-based Xreal, a mixed-reality glasses maker that  positions itself as a more affordable alternative to the Quest and Vision Pro, which raised $60 million in January at a $1 billion valuation.

Most notably, Google recently partnered with augmented reality startup Magic Leap in a strategic technology deal, hinting that the tech giant may be preparing to re-enter the AR and VR market, a space it has mostly left to rivals. Over a decade ago, the search engine giant was a trailblazer in AR. This enthusiasm peaked during a 2012 demo where skydivers used the glasses to live stream a jump onto a building in San Francisco. However, the product faced significant consumer pushback due to its awkward design and privacy concerns.

Augmented Reality Market & Outlook

The global augmented reality market, valued at $32.1 billion in 2022, is projected to grow from $42.85 billion in 2023 to $432.35 billion by 2031, with a compound annual growth rate (CAGR) of 33.5% over the forecast period, according to industry data from SkyQuest.

A significant portion of the market is mobile AR, leveraging the widespread ownership of smartphones, tablets, and other mobile devices. As of this year, it's projected that there will be 1.7 billion devices capable of supporting mobile AR. Notably, a key advantage mobile AR enjoys is the massive existing smartphone user base. Unlike the steep challenges AR glasses face, mobile AR benefits from "zero-cost" hardware, making its path to adoption relatively smoother. Growth is expected across both enterprise and consumer segments, including digital AR experiences. A well-known example is the 2016 video game Pokémon GO, where players explore their surroundings to find virtual characters on their phones. Additionally, collaborations between key market players and 5G providers to address latency issues are expected to fuel market growth.

Our Methodology

In this article, we reviewed online rankings and ETFs to determine 20 companies operating in the AR space. We then selected the 10 stocks that were the most popular among elite hedge funds. We sourced the hedge fund data from Insider Monkey's database of 912 hedge funds, as of Q2 2024. Our focus was on companies that produce AR-related hardware, software, or technologies used in developing augmented reality products. However, we also included companies that offer services essential to the AR industry, like semiconductor chips.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A team of developers working in unison to create the company's messaging application.

Meta Platforms, Inc. (NASDAQ:META)

Number of Hedge Fund Holders: 219

Meta Platforms, Inc. (NASDAQ:META) has made a significant shift towards the metaverse, VR, and AR technologies in recent years. The company has ambitious plans in these areas, including the development of smart glasses, Quest headsets, and smartwatches. However, Reality Labs, Meta's division dedicated to VR and augmented reality innovations, has faced scrutiny due to its substantial financial investment in these emerging consumer platforms.

Despite these concerns, BofA Securities has maintained a Buy rating for Meta Platforms Inc. (NASDAQ:META), with an unchanged price target of $550. This comes after reports suggested that Meta plans to reduce its investment in Reality Labs' hardware by about 20% through 2026. While Meta has not officially confirmed these budget adjustments, the potential cuts are viewed as a strategic response to the lukewarm reception of VR devices in the market, though there is a renewed interest in AR glasses.

Meta Platforms Inc. (NASDAQ:META) reported a stronger-than-expected profit of $13.5 billion for the most recent quarter, boosting its shares by nearly 7%. Revenue for the April-June period reached $39 billion, surpassing market expectations and marking a 22% increase year-over-year. The California-based tech giant forecasts third-quarter revenue between $38.5 billion and $41 billion.

At the end of Q2 2024, 219 investors reported holding positions in META, with total stakes valued at $42.5 billion, a notable decrease from $46.9 billion in the previous quarter.

Alger Focus Equity Fund stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q1 2024 investor letter:

“Meta Platforms, Inc. (NASDAQ:META) operates the world’s largest social network, with over 3 billion monthly active users across its platform. The company generates revenue predominantly from advertising. which accounts for over 95% of its total revenue, evenly split between North America and international markets. During the quarter, shares contributed to performance following the release of strong fiscal fourth quarter operating results, with revenues and earnings surpassing analyst estimates. The better-than- expected revenues were attributed to strong advertiser demand and Al-driven ad improvements. Moreover, the company materially raised its fiscal first quarter sales and earnings guidance above analysts’ estimates, buoyed by continued strong advertiser demand trends and enhancements to Reels. Advantage+. Click-to-message, and Shop Ads. Further, management noted that ongoing investment in Al is enhancing user engagement and advertiser returns through improved targeting and measurement. Separately, Meta authorized a new share repurchase plan representing approximately 5% of its market capitalization and announced the initiation of its first dividend, implying an approximate 0.4% yield.”

Overall META ranks 3rd on our list of the best augmented reality stocks to buy. While we acknowledge the potential of META as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.