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Shifting Reality Is Definitely a NexGen Opportunity

Sep 06, 2017


A few months ago, I bought a house in a way that would have seemed unimaginable to buyers as recently as a few years ago. Now, I’m using other NexGen innovations to furnish it. One in particular is really cool.

This all started after I settled into my new office in Nashville and considered buying a home here. I registered with the online real estate marketplace to get a sense of what was available, and I got in a pattern of clicking on Zillow’s (Z) recommendation links several times a week to check out potential listings and open houses.

When I visited those houses in person, the realtors were always very quick to suggest themselves or a colleague as agents for my house hunting, but I would politely decline. I’m always weary of someone trying to sell me something anyway, but it ultimately came down to cost versus benefit. (Isn’t that what you would expect from a money guy?) If the seller has to pay my realtor 3% of the purchase price, I can offer 3% less and they still get the same amount of money. Through simple clicks, I found several homes I was interested in and bought one. Using these NexGen tools instead of a realtor made the process more convenient and less expensive.

Since then, I’ve been furnishing the house. I’ve stuck with what works, using websites like Wayfair (W). Why drive all over town to find a good deal on a new couch or bed when you can have it all at your fingertips?

Ah, but how do you know what will fit? Well, good old-fashioned measuring still works, but even better – and more fun – is using innovations made possible by augmented reality (AR). AR does what it says: takes what’s real and layers computer-generated enhancements on top of it. So in this case, I can take pictures of a room in my house and try out different paint colors on the walls or drop in furniture to see how it all looks. It’s the same technology used in popular apps like Snapchat and Instagram. Millennials in particular love to change their appearance by using filters and AR images.

But getting back to measuring specifically, there are now AR apps being developed that allow your smartphone to do that for you. AR apps are actually a huge push for Apple (AAPL), so expect to hear more now and in the future with next week’s unveiling of the new iPhone. It’s best to see what I’m talking about, so here’s a demonstration of one AR app you can use for measuring:

The AR/VR Trend

Augmented reality and virtual reality (VR) are driving a fast-growing NexGen trend. By definition, virtual reality is artificial. It’s a computer-generated simulation of a real-life situation that is accomplished by stimulating sight and sound. The technology has a wide range of uses, from fun stuff like making gamers feel as if they are actually fighting a dragon to incredibly important things like training new pilots. AR also has a ton of uses in both fun and serious industries, such as healthcare.

Total spending on AR/VR products and services is expected to more than double each year for the next four years and climb to $215 billion in 2021 from $11 billion in 2017 – so 1,955% in just four years. Now that’s an opportunity!

The U.S. is expected to lead the way in initial expansion, but other parts of the world will also experience incredible growth between now and 2017, some even more robust than here:

  • Canada: 145% annualized growth
  • Central Europe: 133%
  • Western Europe: 121%
  • United States: 120%

Spotting the Leaders Today and Tomorrow

The AR/VR space is the “who’s who” of the technology world, and at this point, many of these companies are larger than what we typically invest in.

For example, there are three leaders in the AR/VR space right now: Samsung, Sony (SNE) and Facebook (FB). FB is definitely my favorite for three main reasons. First, it already owns about 12% of the VR headset market thanks to its $2.3 billion acquisition of Oculus three years ago. Second, Facebook is preparing for the future like no one else – since 2013 it has spent more than $2 billion to purchase 11 small companies within the sector that will help build out its own AR/VR division. And third, the company currently has 86 LinkedIn listings for AR/VR-related jobs, which is more than triple its next competitor. (Pro tip: Job listings are often a good way to learn or confirm a company’s plans.)

FB is an interesting opportunity now, but AR/VR is just one part of its huge business. There is more money to be made in small- to mid-cap stocks that are not yet household names. This is where the true NexGen upside potential is huge. For example, I really like a small-cap company that supplies components to the AR/VR companies, and Alphabet (GOOGL) owns a stake in it. I also like hot semiconductor stock that has been a Wall Street darling this year and is set to be a leader in supplying chips to the AR/VR sector.

I’m watching both now for the right opportunity. And when they get to be as big as Facebook or Alphabet, we’ll have already made our money and moved on to the next winner, perhaps many times over.

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