Investing in Augmented Reality in 2018

Last week I had the privilege of attending a private reception at the Consumer Electronic Show (CES 2018) in Las Vegas, Nevada, to test out the industry’s latest augmented reality tech — a wide array of digital eyewear and smartglasses from various companies looking to make the next breakout consumer device.

CES has always been a good lens to view upcoming technology trends, and this year augmented reality was undoubtedly a leading attraction at the conference.

This reception I attended was packed from wall to wall in a large, private suite on the 50^th floor of the Palazzo hotel. From investors to analysts to industry executives, everyone’s eyes were (both literally and figuratively) focused on the emerging field of augmented reality.

Now, I’ll be frank in telling you that from what I’ve witnessed, AR isn’t quite ready for full-scale commercial adoption just yet, but it’s become entirely obvious that is the direction this industry is heading. For now, we’re stuck mainly with enterprise and industrial applications. Within a year or two, though, AR is going to take the world by storm.

I’m quite sure of this not only because I’ve tested these devices in person and have witnessed the industry’s progression every year for the last four years, but also because I rub shoulders with the very people who make this technology tick.

The level of optimism behind closed doors this year was unmatched by any previous years. The most cautious leaders in the field are framing 2019 as the year AR starts to go hyperbolic, and it’s these folks who are in the clear minority. Many experts — particularly those in industrial AR — are already proclaiming 2018 to be a breakout year.

In any event, there’s a prevailing sense among professionals in the AR industry that they’re about to strike gold. It’s an ambitious lot who clearly see parallels to the rise of the smartphone in the mid-2000s. Every CEO wants to be the next Steve Jobs, and every company wants to be the next Apple.

It sounds like a cliché, but I really wouldn’t be surprised to see any of these leaders pull it off.

Take Paul Travers as one example.

Travers is the CEO at Vuzix Corporation (NASDAQ: VUZI). He’s been in the tech industry for longer than just about anyone — over two decades — and he’s finally getting the notoriety he’s worked so hard for.

Vuzix has already received a small level of attention from niche investors because it’s the only augmented reality OEM you can actually trade on the public market. The company is small — with a market cap of about $200 million — but it managed to make even some of the biggest tech players look like amateurs last week.

The company’s flagship smartglasses, the Vuzix Blade AR, were widely recognized as one of the most innovative AR devices at CES this year. A number of leading publications put the Blade AR ahead of Google’s attempt at Glass.

The Verge snubbed Google in this headline: “Vuzix Blade AR glasses are the next-gen Google Glass.”

Gizmodo went event further with this one: “The Vuzix Blade Is What Google Glass Always Wanted to Be.”

It might be hard to believe that a tiny microcap company could make a better AR device than Google, a $785 billion tech behemoth, but the results are in.

CNET named Vuzix Blade the “Best of CES 2018: Day 1.”

FOX News named Vuzix Blade the “Best Wearable.”

Tom’s Guide gave Vuzix Blade its award for “Best Augmented Reality at CES 2018.”

And TechRadar awarded Vuzix Blade “Best AR on Show at CES 2018.”

I bring this all up not to play cheerleader Vuzix in particular but rather to point out that there are smaller companies fully capable in this space. A lot of people are prematurely looking to Microsoft, Apple, and Google as the de facto winners in AR, but the truth is we just don’t know yet which OEMs will come out on top.

This means a lot of investors will be taking gambles on tiny companies like Vuzix in hopes that they can continue to outclass their larger competition. If they can pull it off, that’s going to lead to a huge return for speculators — somewhat like buying Apple pre-iPhone or in the early 1990s.

Figuring out who’s going to have that blockbuster device, though, isn’t quite so easy. Vuzix may hold the lead right now, but keep in mind that so did cell phone makers like Nokia, BlackBerry, and Motorola leading up to the release of the iPhone.

Is there value in Vuzix? Absolutely there is. The company has over 100 patents and patents pending in the video eyewear field, which positions it as a potential takeover target or royalty powerhouse.

But is Vuzix guaranteed to win the AR race? Is it a safe all-around bet on smartglasses and digital eyewear? I wouldn’t say so at this point.

In fact, I would say there’s really only one safe bet when it comes to investing in AR this early, and that’s the suppliers who make the nuts and bolts of this emerging technology.

You see, that private reception I mentioned earlier was actually hosted by a single supplier, a company that virtually every AR device maker on the planet is looking to right now. During a panel discussion at the reception, in fact, one CEO rightly remarked that none of these companies would even exist if it weren’t for this supplier.

It’s not just little-known companies like Vuzix interested in these AR suppliers, either. As Bloomberg News reported late last week:

During CES, representatives from major players like Apple, Facebook, and Google met with suppliers that make the nuts and bolts required to power AR glasses, according to people familiar with the meetings.

No doubt the company hosting this reception was at the top of the list of suppliers to meet with. In fact, we’ve already confirmed that its technology is being used in AR prototypes by at least two of the companies mentioned in the Bloomberg quote above.

As for what this supplier does, it provides high-quality displays for virtual and augmented reality headsets. Everything consumers see when they’re using a pair of smartglasses will be because of companies like this one.

Perhaps most exciting for investors is the fact that this company trades for less than $5 a share, at least for the time being. 2018 is going to be the year to build a position in this firm, with 2019 being a breakout year. For the full details, I would urge any interested investors to check out this presentation here.

Until next time,

Jason Stutman

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