Augmented reality (AR) and virtual reality (VR) are two of the biggest trends in the technology industry right now. Up to now, many of the uses of these emerging technologies have been in the gaming industry, with VR headsets becoming increasingly popular in recent years.

But AR and VR technology is not just limited to gaming, and as work-from-home becomes a permanent reality for more companies, these technologies will likely expand from consumer to enterprise markets. Here’s what else you should know about virtual and augmented reality.

Key AR/VR statistics:

  • The global VR market is expected to grow from $4.5 billion in 2020 to $22.4 billion in 2025, according to AR research firm ARtillery Intelligence.
  • Consumer spending is expected to account for about 60 percent of the market in 2025, while enterprise spending is expected to make up 40 percent, according to ARtillery.
  • The global head-worn AR market is expected to reach $17.7 billion in 2025, up from $1.6 billion in 2020, according to ARtillery.
  • Meta Platform’s Quest 2 VR headset sold 8.7 million units in 2021, according to a report from International Data Corporation, commanding about 78 percent of all headset sales.
  • The mobile AR market is expected to reach $36.3 billion globally in 2026, up from $12.5 billion in 2021, according to ARtillery.

AR/VR: A rapidly expanding marketplace

AR and VR are two of the fastest growing areas of technology. Global giants such as Facebook parent company Meta Platforms, Microsoft and Sony are heavily investing in these technologies to fuel their growth for years to come. The global VR market is expected to grow at an annual rate of almost 38 percent from 2020 through 2025, according to ARtillery Intelligence, while the global head-worn AR market is expected to expand by 11 times over the same period.

The growth is expected to be driven by new uses of the technology beyond gaming, such as healthcare, engineering, defense and entertainment. Meta plans to spend billions to build the metaverse, which will rely on VR and AR technology.

Advances in AR/VR technology

  • Meta Quest 2: The Meta Quest 2 headset has been popular with the gaming community, selling 8.7 million units in 2021. The product comes with a VR headset and two touch controllers that help to simulate reality.
  • PlayStation VR2: The PlayStation VR2 is a competitor to the Quest 2 headset and pairs with the PS5 gaming system. The headset tracks your eyes, making for a life-like gaming experience.
  • Smart glasses: Several companies have entered or re-entered the smart glasses market, including Alphabet and Meta. The glasses vary from model to model, but they can allow you to take pictures and video, as well as answer phone calls. Meta even partnered with Ray-Ban to appeal to more style-conscious consumers.
  • Apple: Apple has long been rumored to be coming out with an AR/VR headset, but until that comes, the tech giant’s many fans can use their iPhones and iPads to access one of the thousands of AR apps on the app store. You can see how furniture looks in your actual living room before buying it or play around with different filters on Snapchat.

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How to invest in AR/VR companies

If you’re interested in investing in this growing technology, you have a couple of different options to consider. You can identify individual companies that you think will benefit from the growth in AR/VR technology and purchase their stocks, or you can find a mutual fund or ETF that invests in a basket of companies along this theme. Here are some options:

Popular stocks to consider:

  • Meta Platforms (META): The company formerly known as Facebook is one of the leaders in AR and VR technology. It’s investing billions of dollars in the metaverse and is the maker of the popular Quest 2 headset. Be aware that the vast majority of Meta’s revenue and profits come from digital advertising through its family of apps such as Facebook, Instagram and WhatsApp.
  • Alphabet (GOOG): Similarly to Meta, most of Alphabet’s sales and profits come from online advertising, but the company has invested in AR/VR projects that could pay off. It was among the first to introduce a smart glasses product and has nearly unmatched resources to pursue new opportunities.
  • Microsoft (MSFT): You may think of relatively boring products like Word, Excel and Powerpoint when you think of Microsoft, but the company is also deeply involved in gaming as the maker of the Xbox. Microsoft also announced plans to acquire Activision Blizzard in 2022, potentially pushing deeper into the gaming world.
  • Apple (AAPL): As one of the largest companies in the world, Apple has the ability to quickly thrust itself into nearly any market through an acquisition or investment in new products. It has been rumored to be working on a VR headset and offers iPhone and iPad users access to thousands of AR-enabled apps through its app store.
  • Nvidia (NVDA): Nvidia makes the technology that powers the devices and technologies that use AR and VR. Its graphic-processing units are used in images and animation as well as other areas that require high-performing chips, such as gaming.

Top AR/VR funds to consider:

*Note: Data as of June 15, 2022.

  • Communication Services Select Sector SPDR Fund (XLC): This fund holds shares in companies in the telecommunication services, media and entertainment industries and includes many companies that should benefit from growth in AR and VR technologies. About 40 percent of the fund’s assets are invested in Alphabet and Meta.

3-year annualized return: 5.5 percent

Expense ratio: 0.10 percent

Total assets: $9.3 billion

  • VanEck Semiconductor ETF (SMH): This ETF seeks to track the overall performance of companies involved in semiconductor production and equipment. Top holdings include Nvidia, Taiwan Semiconductor (TSM) and Broadcom (AVGO).

5-year annualized return: 22.3 percent

Expense ratio: 0.35 percent

Total assets: $6.9 billion

  • Invesco QQQ Trust (QQQ): This ETF is based on the Nasdaq-100 Index and includes about 100 of the largest non-financial companies listed on the Nasdaq Stock Market based on market capitalization. Top holdings include many AR/VR leaders such as Apple, Microsoft, Nvidia, Alphabet and Meta.

5-year annualized return: 16.1 percent

Expense ratio: 0.20 percent

Total assets: $154.8 billion

Real-world applications of AR/VR

While VR and AR technologies sound exciting, sometimes the concepts can seem vague and confusing. Here are some real-world examples of how the technology can be put to use.

  • Education/training: Imagine medical students being able to use a VR headset to learn how to perform surgery or look at different areas of the body. Schools can bring complex subjects to life using AR technology to help students understand the concepts.
  • Shopping: Many stores now allow you to use their app to try on glasses to see how they look on your face before buying or see how furniture looks in your house before ordering. You might even select a pair of shoes to customize through the app before placing an order.
  • Travel/entertainment: You may soon be able to immerse yourself in fictional worlds using VR headsets. Just think, Harry Potter fans could feel like they’re students at Hogwarts, while others could fight the dark side in the Star Wars universe.
  • Repair/maintenance: Mechanics who arrive to fix an appliance or piece of complex equipment may be able to use AR/VR glasses or headsets to quickly diagnose problems and see potential solutions without reading physical manuals or calling headquarters for help.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.