In this article, we will be taking a look at the 10 worst Augmented Reality (AR) stocks according to short sellers.
Recent Developments in the AR Space
Augmented Reality (AR) has been an exciting development within the broader tech sector. AR offers a partly immersive experience to users through which they can interact directly with a 3D overlay onto the external reality in real-time. There are several interesting examples of AR usage in today’s tech sector, such as AR projections from phone devices, AR windshields on cars, and, perhaps most commonly, AR glasses. Suffice it to say this is a growing area within tech with immense potential, and there’s a lot of excitement surrounding AR players in the market today.
In our previous articles on AR stocks, we’ve covered some of the key players in this space, including notable tech titans. However, if you’ve kept up with developments in the AR space, you’d know that many investors are still considering this area to be a risky investment overall and are not convinced that the billions of dollars that are going into developing AR tech are justified. Because of this type of sentiment in the market, one of the major businesses in AR/VR today, Reality Labs, is undergoing loss upon loss and is unable to really make it back.
Investors Are Worried About the Future of AR Companies
On April 25, Rob Sanderson, managing director at Loop Capital, joined CNBC’s “The Exchange” to discuss Mark Zuckerberg’s increased spending in AR/VR. He noted that the company had been spending about a quarter’s worth of earnings on Reality Labs to build up the vision of the Metaverse, but there’s not a great return on investment for this spending, and nor are there any ways to justify it. Another interesting factor here is that despite the immense spending on Reality Labs and presumably the Meta Quest 2 headset, most tech experts who have gotten the chance to try out this headset believe that it loses out in competition with another, pricier headset – the Vision Pro. According to Joanna Stern, Wall Street Journal’s senior personal technology columnist, the Vision Pro is just not comparable with the Quest 2. The Vision Pro is winning in this race because it’s lighter, offers more seamless operability, and is just more user-friendly in terms of its features – all this despite the hefty price tag.
With the way things are, it’s unsurprising that investors are beginning to lose faith in Reality Labs and really can’t wrap their heads around the immense spending being done there. This type of concern is actually rampant across the board for many AR stocks in the market today, with several of these companies having the same issue of increased spending, which tends to throw investors in a panic because many of the companies operating in the AR space right now are actually quite small, and still have to prove their worth in the market. Considering this widespread concern, we’ve compiled a list of some of the worst AR stocks according to short sellers, so investors looking to buy into this space know where to put their money and which companies to absolutely avoid, at least for the time being.
A person wearing augmented reality glasses experiencing a virtual reality world.
Our Methodology
We first compiled a list of 20 AR stocks by sifting through ETFs and online rankings. We then selected the 10 stocks with the highest short interest and ranked them in ascending order of this metric. We have also mentioned the number of hedge funds holding stakes in each stock, as per Insider Monkey’s hedge fund data for the second quarter.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Worst Augmented Reality (AR) Stocks According to Short Sellers
10. Immersion Corporation (NASDAQ:IMMR)
Number of Hedge Fund Holders: 15
Short Interest: 7.1%
Immersion Corporation (NASDAQ:IMMR) is an information technology company based in Aventura, Florida. It creates and licenses haptic technologies that allow people to use their sense of touch to engage with and experience digital products. It thus has a massive presence in the gaming and VR/AR markets.
While Immersion Corporation (NASDAQ:IMMR) may seem like a promising growth play, there are some warning signs that investors should keep an eye on. For the next three years, Immersion Corporation’s (NASDAQ:IMMR) earnings are forecasted by analysts to decline by an average of 64.6% per year.
The company has posted strong second-quarter results, but some investors consider it to still be a risky investment because of its recent acquisition of a controlling stake in Barnes & Noble Education. This acquisition has resulted in Immersion Corporation (NASDAQ:IMMR) needing to consolidate the new subsidiary’s financial results, which would result in Immersion Corporation (NASDAQ:IMMR) reporting massive losses in the first half of each year, followed by stronger profits in the second half.
Additionally, most of the increased fixed fee license revenue seen by Immersion Corporation (NASDAQ:IMMR) in the first half of 2024 came from a litigation settlement and related licensing agreement with Meta Platforms, alongside the renewals of existing agreements with other licensees, such as Nintendo and Samsung. These payments are not going to repeat in the near future, so licensing revenues for Immersion Corporation (NASDAQ:IMMR) are also likely to drop significantly in the second half of this year. With all this uncertainty surrounding the stock, especially because its profits are contingent on certain developments, many investors are avoiding Immersion Corporation (NASDAQ:IMMR) today.
There were 15 hedge funds long Immersion Corporation (NASDAQ:IMMR) in the second quarter, with a total stake value of $26.1 million.
9. Williams-Sonoma Inc. (NYSE:WSM)
Number of Hedge Fund Holders: 39
Short Interest: 10.1%
Williams-Sonoma Inc. (NYSE:WSM) is a consumer discretionary company that offers home products. The company has recently joined the growing number of retailers using tech, particularly AR, to improve customer experiences. It has recently launched its Design Crew Room Planner, an online platform that allows its users to map out rooms with potential furniture purchases. Through this platform, Williams-Sonoma Inc. (NYSE:WSM) aims to aid online shoppers in visualizing their purchases in an AR setting to better inform their purchase decisions.
Despite Williams-Sonoma Inc.’s (NYSE:WSM) attempts to stay afloat, the current market is not conducive to home product retailers’ growth. Company management noted in its second-quarter earnings call that the company is dealing with a difficult market plagued by slow housing, a factor that may drive down demand for home products.
Comparable brand revenue in the second quarter fell by 3.3% for Williams-Sonoma Inc. (NYSE:WSM), while overall revenue also declined by 4% to $1.79 billion, which misses the consensus estimate of $1.81 billion. Revenue guidance for the full year of 2024 called for a decline of 1.5% to 4% as well, which highlights that Williams-Sonoma Inc. (NYSE:WSM) management expects to battle ongoing headwinds for now. The current market economy going through a housing slowdown overall just makes home product retailers a bad pick for investors today.
Williams-Sonoma Inc. (NYSE:WSM) had 39 hedge funds long its stock in the second quarter, with a total stake value of $1 billion.
8. Xerox Holdings Corporation (NYSE:XRX)
Number of Hedge Fund Holders: 28
Short Interest: 11.8%
Xerox Holdings Corporation (NYSE:XRX) is an information technology company based in Norwalk, Connecticut. It integrates hardware, services, and software for enterprises. The company’s main AR offering is CareAR, which enables service teams anywhere in the world to instantly provide remote visual AR support for customers, employees, and field workers.
Investors interested in the AR space should avoid Xerox Holdings Corporation (NYSE:XRX) though, since the company’s financial position is far from strong. In the second quarter, its revenue decreased by 10% in actual and constant currency. Sale and profit margins for the company have also been down in 2024, and the stock has been taking a hit since its earnings report and is down 38.9% year-to-date.
The company is engaging in cost-cutting moves such as selling its assets and leaving unprofitable markets, mainly in South America, but whether these moves will have a positive impact on Xerox Holdings Corporation’s (NYSE:XRX) financial position is uncertain at this time. Earlier this year, the company’s COO, John Bruno, said he expected revenue for the company to fall in 2024. All in all, now does not seem to be a good time for investing in this stock.
Xerox Holdings Corporation (NYSE:XRX) had 28 hedge funds long its stock in the second quarter, with a total stake value of $67.1 million. SG Capital Management was the most prominent shareholder, holding 11,011,702 shares.
