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.
7. Etsy, Inc. (NASDAQ:ETSY)
Number of Hedge Fund Holders: 36
Short Interest: 12.9%
Etsy, Inc. (NASDAQ:ETSY) is an e-commerce company based in Brooklyn, New York, but it has started branching out its business to include AR in various tools. The company has recently introduced an AR feature in its iOS app that places Etsy sellers’ artwork on a user’s wall using AR tools. Nearly a million Etsy items now have real-size AR functionality added to them to assist users of the app.
Investors are shying away from Etsy, Inc. (NASDAQ:ETSY) this year, though, considering disappointing financial results in the second quarter. The company’s gross merchandise sales were down by 3.2% year-over-year, a decline brought about by headwinds from a tough macroeconomic environment. This came right after a 5.3% decline in gross merchandise sales in the first quarter. While the decline has narrowed a bit, the trend still shows an overall downward trajectory for Etsy, Inc. (NASDAQ:ETSY). Habitual buyers on Etsy, Inc. (NASDAQ:ETSY) also decreased by 3% year-over-year in the second quarter.
While Etsy, Inc. (NASDAQ:ETSY) was doing well during the pandemic, probably because the quarantine drove people to make more online purchases, the current market position is heavily disfavoring the e-commerce player. Consumers have moved back to pre-pandemic spending habits with Etsy, Inc. (NASDAQ:ETSY) facing the consequences of this. The company’s guidance for the second half of 2024 is also offering only a modest acceleration in gross merchandise sales, which is not enough to tempt investors to stick around or take up positions in this stock.
Etsy, Inc. (NASDAQ:ETSY) was spotted in the portfolios of 36 hedge funds in the second quarter, with a total stake value of $1.2 billion. Elliott Management was the largest shareholder in the company, holding 4,500,000 shares.
Artisan Partners mentioned Etsy, Inc. (NASDAQ:ETSY) in its second-quarter 2024 investor letter:
“We ended our investment campaigns in Bentley and Etsy, Inc. (NASDAQ:ETSY) during the quarter. Etsy is the leading e-commerce marketplace for buyers and sellers of unique, hard-to-find handmade or vintage products. Given its large addressable market, experienced management team and unique technology investments, we believed the company had a long runway for further top-line growth. However, financial results have been disappointing, and we decided to exit the position.”
6. Super Micro Computer, Inc. (NASDAQ:SMCI)
Number of Hedge Fund Holders: 47
Short Interest: 13.1%
Super Micro Computer, Inc. (NASDAQ:SMCI) is another information technology company on our list and is based in San Jose, California. The company’s product offerings include edge-to-cloud technologies for AR, computer vision, multi-access edge computing, and more. It is also working with Taqtile to provide an interactive demonstration of AR for robotics and on-site training.
One of the major reasons why investors should avoid this stock is that its capital expenditures have been on the rise since the end of 2023, while its gross profit margin has been plateauing. For instance, in 2024, Super Micro Computer, Inc. (NASDAQ:SMCI) hit the $92 million mark on its quarterly capital expenditures, while its gross profit margin actually fell from over 18% in 2023 to about 15.5% in 2024.
Super Micro Computer, Inc. (NASDAQ:SMCI) is also considered overvalued relative to its competitors. The stock has a P/E ratio of 27.3, while competitors Dell and HP, which are arguably more diversified, have P/E ratios of 22.8 and 12.02, respectively. Because of this, investors looking to buy into businesses similar to Super Micro Computer, Inc. (NASDAQ:SMCI) prefer the cheaper options that are also better poised to continue on a growth trajectory in the near future.
There were 47 hedge funds long Super Micro Computer, Inc. (NASDAQ:SMCI) in the second quarter, with a total stake value of $1.5 billion. Citadel Investment Group was the most prominent shareholder, holding 17,515,000 shares.
Artisan Partners said the following about Super Micro Computer, Inc. (NASDAQ:SMCI) in its second-quarter 2024 investor letter:
“Super Micro Computer, Inc. (NASDAQ:SMCI) manufactures server racks for central processing units and GPUs that have experienced an artificial intelligence-driven uptick in demand from its cloud and enterprise customers. This company has been on our radar for years, and we met with them in our Milwaukee offices in early 2023. However, we don’t consider the stock investable given corporate governance issues.”
5. eXp World Holdings, Inc. (NASDAQ:EXPI)
Number of Hedge Fund Holders: 17
Short Interest: 13.02%
eXp World Holdings, Inc. (NASDAQ:EXPI) is a real estate company based in Bellingham, Washington, but it makes significant use of AR and VR technologies to replicate real-world dynamics and social interactions in its operations, primarily through its cloud-based product, Virbela.
In the second quarter, eXp World Holdings, Inc. (NASDAQ:EXPI) saw June’s home existing sales down by over 5% year-over-year. Another warning sign for investors could be that the company’s found, Glenn Sanford, sold $1.1 million worth of eXp World Holdings, Inc. (NASDAQ:EXPI) stock at a price of $12.80 per share in July, which is around when the shares were trading above $14.
Investors may also be avoiding eXp World Holdings, Inc. (NASDAQ:EXPI) because its second-quarter results overall were quite disappointing. It missed analysts’ estimates on both EPS and revenue by $0.06 and $3.28 million, respectively. In fact, eXp World Holdings, Inc.’s (NASDAQ:EXPI) earnings have been on a general decline over the past five years. This is all the more concerning since the company pays out a dividend at a yield of 1.6%. Since company dividends are supposed to come out of profits, investors are concerned that eXp World Holdings, Inc. (NASDAQ:EXPI) may not have the free cash flow to keep up with dividend payments alongside its operational expenses.
A total of 17 hedge funds were long eXp World Holdings, Inc. (NASDAQ:EXPI) in the second quarter, with a total stake value of $53.5 million.
O’keefe Stevens Advisory mentioned eXp World Holdings, Inc. (NASDAQ:EXPI) in its first-quarter 2024 investor letter:
“EXp World Holdings, Inc. (NASDAQ:EXPI) – The market underestimates the impact of recent NAR settlement and regulation changes. EXP’s buyer-tilted business model affects them more than typical real estate brokers. We walk through the unit economics of the changes at a broker and corporate level.”
4. Vuzix Corporation (NASDAQ:VUZI)
Number of Hedge Fund Holders: 11
Short Interest: 13.8%
Vuzix Corporation (NASDAQ:VUZI) is an information technology company that manufactures smart glasses and AR tech. It is based in West Henrietta, New York.
Many investors are avoiding this stock in light of its second-quarter earnings report, which highlighted disappointing results. Company management noted that the $1.1 million revenue for the second quarter was down substantially year-over-year, coupled with an overall gross loss of $0.3 million for the three months ended June 30. The main reason behind such a loss was that Vuzix Corporation (NASDAQ:VUZI) was unable to generate enough revenue to absorb its fixed manufacturing and plant overhead costs.
Manufacturing and overhead costs rose by 42% year-over-year in the second quarter, which is a significant increase from the 8% figure quoted in the second quarter of 2023. Research and development expenses of $2.4 million may also be partially to blame for the loss observed by Vuzix Corporation (NASDAQ:VUZI) in the second quarter. All in all, the company seems to be unable to keep up with its expenses at present, which makes it an incredibly risky stock that should be avoided at present.
In total, 11 hedge funds were long Vuzix Corporation (NASDAQ:VUZI) in the second quarter, with a total stake value of $8.8 million.
3. InterDigital, Inc. (NASDAQ:IDCC)
Number of Hedge Fund Holders: 29
Short Interest: 20%
InterDigital, Inc. (NASDAQ:IDCC) is an application software company based in Wilmington, Delaware. It offers wireless, visual, AI, and related technologies. Within the AR space, the company offers the AR-Bot, a system for robot navigation, alongside several full-color meta-grating solutions for single waveguide-based AR/VR near-eye display systems.
With a short interest of 20%, InterDigital, Inc. (NASDAQ:IDCC) is a stock that many short sellers consider to be a bad investment. One of the reasons for this may be the fact that the company has been involved in costly litigation with other companies, usually over patent infringement and licensing negotiations. One such legal dispute that InterDigital, Inc. (NASDAQ:IDCC) is embroiled in presently is its litigation against Lenovo.
InterDigital, Inc. (NASDAQ:IDCC) has also faced revenue fluctuations in the past, primarily because a major portion of its revenue depends on licensing agreements with other tech companies. Legal disputes and the need for renewals of licensing agreements may thus also negatively impact InterDigital, Inc.’s (NASDAQ:IDCC) ability to ensure a consistent revenue stream.
InterDigital, Inc. (NASDAQ:IDCC) was spotted in the 13F holdings of 29 hedge funds in the second quarter, with a total stake value of $154.3 million.
First Pacific Advisors mentioned InterDigital, Inc. (NASDAQ:IDCC) in its first-quarter 2024 investor letter:
“InterDigital, Inc. (NASDAQ:IDCC) is a research and development organization that develops and acquires wireless and video patents across key technologies. The company has a history of strong financial performance, opportunistically buys back shares, and pays a modest dividend. IDCC has been successfully renewing its wireless licensing agreements (Apple in 2022, Samsung in 2023) and has a growing stream of recurring licensing revenues across consumer electronics, internet of things (IoT) and automotive customers. CEO Liren Chen joined IDCC in 2021 from Qualcom and has been hiring other former Qualcom managers. The company bought back $338m of stock last year and authorized another $300m buyback in its Q4 2023 earnings release.”
2. Microvision, Inc. (NASDAQ:MVIS)
Number of Hedge Fund Holders: 7
Short Interest: 25.8%
Microvision, Inc. (NASDAQ:MVIS) is another information technology company on our list, based in Redmond, Washington. It offers AR microdisplay engines, interactive display modules, and consumer lidar components for autonomous driving applications.
This stock is considered a risky investment that many investors are avoiding because it isn’t yet producing significant amounts of operating revenue. Over the course of 2023, Microvision, Inc. (NASDAQ:MVIS) increased its cash burn by 63%, which is a significant figure that highlights the fact that the company is losing out on its free cash flow. This has been raising concerns about the company’s ability to sustain its operations without additional funding.
Another worrying factor for many investors is the fact that over the past five years, Microvision, Inc. (NASDAQ:MVIS) has seen a revenue decline of 11.4% yearly. The stock is also down by 65.9% year-to-date, which is only adding insult to injury. Microvision, Inc. (NASDAQ:MVIS) has also been facing challenges in securing contracts with automotive sector players, with its competitors, such as Cepton, gaining the upper hand. All of these factors have resulted in the stock being shorted by many investors.
Seven hedge funds held stakes in Microvision, Inc. (NASDAQ:MVIS) in the second quarter, with a total stake value of $1.7 million.
1. Enovix Corporation (NASDAQ:ENVX)
Number of Hedge Fund Holders: 22
Short Interest: 26.8%
Enovix Corporation (NASDAQ:ENVX) is an electrical components and equipment company based in Fremont, California. It produces lithium-ion batteries, which are used to power wearables and portable networking devices, including AR/VR devices and accessories.
One of the key reasons why investors dislike Enovix Corporation (NASDAQ:ENVX) is because it has high operating expenses, which is a cause for concern over the company’s free cash flow. In its second-quarter results, operating expenses for the company were shown to have increased to $88.1 million, primarily because of restructuring costs. This surge also resulted in Enovix Corporation (NASDAQ:ENVX) suffering a GAAP net loss of $115.9 million, which has also taken a hit on investor confidence.
Enovix Corporation (NASDAQ:ENVX) shares have also fallen by 19.9% year-to-date, which shows volatility in share price that most investors are unwilling to put up with. Additionally, the fact that the effectiveness and profitability of the company’s silicon anode tech is still largely untested means that many investors are unwilling to take a risk by investing in Enovix Corporation (NASDAQ:ENVX) shares until the company proves the viability of its tech at a commercial scale.
There were 22 hedge funds long Enovix Corporation (NASDAQ:ENVX) in the second quarter, with a total stake value of $153.2 million.
While AR is an exciting area to consider investing in, albeit carefully, we believe that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones mentioned in our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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