How to invest in VR technology

With virtual reality technology becoming increasingly popular, there are a number of firms that allow you exposure to get on board what could be a revolution in gaming and social interaction.

Sony
Source: Blooberg

Virtual Reality (VR) is the new craze sweeping the gaming industry, or at least that’s what companies will have you believe. Undoubtedly, there is huge interest in what could be the future medium of choice for visual entertainment, but we are not quite there yet. There are a host of companies that are going to be impacted by the success or failure of this new platform, from those on the front-line, to those creating components.

Sony
Perhaps the most obvious company at the forefront of the VR revolution is Sony, which offers the only headset designed specifically for a console, the PlayStation 4. This certainly gives the firm a benefit over its competitors, given gamers will often be open to investing money in an additional accessory that, on this occasion, breathes a new lease of life into the current console.

Initial sales have been strong to some extent, with almost one million units sold in the first four months (Sony expected it to take six months). At the current rate, it will be difficult to generate sufficient interest from game developers, who will likely see the target audience of their game as too restrictive to allocate a significant amount of funding into a VR game quite yet. This could be an issue across the industry while it is in its infancy.

We are talking about a major company here, so the share price only partially reflects the success of the VR product. The share price has performed well over recent years, which would be expected to continue should the VR really take off. The 76.4% resistance (3315) appears to be acting as a barrier for now, yet the ascending channel remains relevant, with further gains seemingly likely. A break back above 4044 would be a major sign that we are set for a period of significant strength for the firm.

Sony chart

Facebook
Facebook's $2 billion purchase of Oculus in 2014 served to arouse interest in the sector at the time, with the company likely to develop the technology into something pretty creative down the line. Mark Zuckerberg himself has speculated that it will take a long time for widespread adoption of the technology, specifying that it could take ten years for the technology to become mainstream. However, this week has seen a huge roadblock for the firm.

Fresh off the back of a $500 million settlement with Facebook for using stolen code, Zenimax has filed a separate suit with the aim of halting any future sales of the Oculus Rift headset. With the firm still almost ten years from seeing the software truly take off, and now with a hugely detrimental lawsuit on its hands, Facebook looks a fairly risky VR play for now.

Looking at the chart, we have seen a bearish wedge breakdown. However, this has been followed up by a rally back into new highs, thus negating the trendline break. Crucially the trend remains intact and despite the VR side of things, this remains a bullish stock for now.

Perhaps with this company, it is worth reminding ourselves that irrespective of how the VR project goes, the firm remains one of the biggest tech firms around. While the VR product could help produce future revenues, its failure would probably do little to undermine the company.

Facebook chart

NVIDIA

Now we start getting into the companies which are supporting the front end providers, with NVIDIA seeking to capitalise on the opportunity the virtual reality market will create for the demand of graphics processing units (GPUs). NVIDIA remains the dominant player in the production of GPUs, which will be in huge demand should the VR technology take off, given the huge amount of graphics processing power the technology requires.

With the advancement of VR on PCs and laptops, we will see a substantial increase in demand of powerful GPUs (NVIDIA produces some of the best). With high-end VR headset makers like HTC and Oculus recommending NVIDIA’s units, it is clear the firm is well positioned to benefit from the increased use of VR technology, irrespective of which headsets become the most popular.

The chart shows the incredible performance of the firm in recent years, with the company’s share price rising 360% in the past two years. Recent weeks have seen the price pull back into a wedge pattern which was broken through back in November 2016. As such, the ability of price to hold up above the current trendline support will be key. However, most importantly we need to see the price remain above 8482 to remain bullish. Until that happens, this pullback could be portrayed as a strong buying opportunity.

NVIDIA chart

AMD

Another key player in the GPU space is AMD, which is more of a minnow compared with NVIDIA. However, we have seen the firm gaining ground over the past year, raising its discrete desktop GPU market share close to 30%.

The key thing to note here is that while some of their graphic cards are similarly recommended by HTC and Oculus, they are the providers of the GPU cards found in the Sony PS4 console.

As such, an investor in AMD is essentially placing a vote of confidence in the future success of Sony’s VR system, with the added extra of AMD’s range of VR-capable graphic cards for PCs. Should we see the PS4 VR product take off, it is highly likely we will see the AMD benefit hugely from trend.

Once more, the trend here is clearly a bullish one, with the share price rising around 408% in the past two years. Again, this looks like a great buy-the-dip scenario, if you can find a dip that is. We are forming a bearish rising wedge pattern, yet until we see a new low created (a break below 942), the uptrend remains intact.

AMD chart

With the PS4 already monetising the VR technology (vs a slow paced rollout for Facebook), AMD seems like a good place to look at as a means to invest in VR technology. The company is a fraction of the size of NVIDIA (15 billion market cap vs 56 billion), with room to grow across both the PS4 and PC offering.

All in all, the decision to invest in any of these companies comes down to each individual’s belief that the technology will truly take off. As we saw with 3D TVs, there is often an unwillingness to wear headsets to enhance the viewing experience. However, the quality of the games and experiences developed are likely to dictate whether it is worth taking a leap into VR. The obvious choices for investment are the front end providers, but perhaps by investing in GPU providers, it would provide a greater degree of diversification across different platforms. 

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