The “next big thing” could be around the corner for Apple.
It has become clearer to Wall Street experts that the Cupertino company will soon enter the VR (virtual reality) and AR (augmented reality) spaces within the next 12 months. What is not yet a consensus, however, is what exactly Apple’s first move will be.
A report published in the past few days sheds some light on this subject. Today, the Apple Maven reviews the mixed reality opportunity and debates how Apple stock (AAPL) - Get Free Report could react.
(Read more from the Apple Maven: How Apple Stock Price Can Still Climb 22%)
A look at the AR/VR market
According to TrendForce, AR and VR device shipments are projected to grow at a dizzying pace of 38% per year through 2023. The ramp up is clearly in the early stages, as the industry grew at a modest pace of only 12% in 2020 — when the technology was still nascent.
Interestingly, the 10 million devices shipped last year were not supported at all by Apple, the most valuable consumer tech gadget company. In fact, the Cupertino-based giant has yet to announce anything about its AR and VR efforts.
This is very much on brand with how Apple approaches its business: carefully at first. At least in the past couple of decades, the company has rarely been the first at anything.
Sure, the iPhone was revolutionary — but, when it comes to smartphones, I would argue that BlackBerry (BB) - Get Free Report and Nokia (NOK) - Get Free Report broke ground first. The Apple Watch may be the most capable of the at-scale wearable devices in the market now, but it was introduced after Samsung, Pebble and others had already made inroads into the new technology.
The story is likely to repeat once again, as Apple will trail Meta (FB) - Get Free Report and others at launching an AR and VR device, maybe as soon as this year. The good news for investors is that the Cupertino company can, and likely will, be the key that unlocks the metaverse potential.
Mixed reality: commercial customers first?
TrendForce chimed in on how Apple is most likely to enter the AR and VR spaces: through the commercial vertical. The research company justifies the move on “hardware performance requirements and gross profit margins”.
Should TrendForce be right, consumers may not get their hands on an Apple AR and VR device very soon. At the very least, the price would likely be prohibitive for the average wallet size.
What does this mean for Apple stock?
Here are two very hard questions to answer at this moment: (1) what is the size of the AR and VR opportunity for Apple, and (2) is the opportunity already priced into Apple stock?
On the first question, one can take a swing by looking at the total addressable market. Could Apple control 10% of the global market by, say, 2025? If so, and making a few assumptions about average selling price and market growth, Apple could add $5 billion to its annual revenues. This would represent growth of 1% to 2% that is not very impressive.
Of course, this number ignores an important component: services. As Apple enters the mixed reality space, it could find business opportunities in AR/VR applications and subscriptions. Once again, estimating these opportunities is not an easy task.
Regarding AAPL share price, there is a chance that at least some of the upside from AR and VR may already be reflected in the valuations — even if not yet in the P&L projections.
For instance, I showed a few days ago how Apple stock is, by far, the priciest of FAAMG stocks (see chart below). This is based on the 2025 forward price-to-earnings ratio divided by EPS growth at that point in time.
Justifying the richer valuation could be early-stage opportunities in AR and VR, not to mention the Apple Car.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)