We recently compiled a list of the 10 Worst Augmented Reality (AR) Stocks According to Short Sellers. In this article, we are going to take a look at where Immersion Corporation (NASDAQ:IMMR) stands against the other AR reality stocks that short sellers do not recommend.
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.
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).
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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.
Overall IMMR ranks 10th on our list of the AR reality stocks that short sellers do not recommend. While we acknowledge the potential of IMMR as an investment, 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 IMMR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.