We recently compiled a list of the 10 Best Augmented Reality Stocks To Buy Now. In this article, we are going to take a look at where Autodesk, Inc. (NASDAQ:ADSK) stands against the other augmented reality stocks.
Augmented reality (AR) is a technology that enhances our perception of the real world by overlaying digital elements through devices, adding to your existing environment. There are various ways to describe AR, from spatial computing to holographic projection, but its practical applications define its true value. A notable example of an AR device is the HoloLens, a holographic computer that enables users to interact with digital content within the real world, leading to its growing adoption across various industries such as education, manufacturing, and healthcare.
AR/VR Startups
Despite its applications and prospective growth, the AR space seems to have lost favor with venture capitalists, with investments declining due to disappointing adoption rates for the gear and leading metaverse platforms. Even the launch of the Vision Pro headset earlier this year, promoted as a “spatial computing” device, didn’t significantly shift the mood. Reports suggest that demand for the $3,500 device is cooling, prompting the maker to lower its shipment forecast.
Similarly, the investment climate in the startup sector remains cold, with only about $464 million invested this year in seed through growth-stage funding for AR, VR, and metaverse-related companies. This sets 2024 on course to reach the lowest funding total in years. Most startups that raised large financings during the peak in 2021 haven’t secured new rounds since. However, despite the slowdown, some notable deals have still occurred, with the largest AR-related round this year going to Rokid, a maker of augmented reality glasses, which raised $70 million in January. Another notable investment was in Beijing-based Xreal, a mixed-reality glasses maker that positions itself as a more affordable alternative to the Quest and Vision Pro, which raised $60 million in January at a $1 billion valuation.
Most notably, Google recently partnered with augmented reality startup Magic Leap in a strategic technology deal, hinting that the tech giant may be preparing to re-enter the AR and VR market, a space it has mostly left to rivals. Over a decade ago, the search engine giant was a trailblazer in AR. This enthusiasm peaked during a 2012 demo where skydivers used the glasses to live stream a jump onto a building in San Francisco. However, the product faced significant consumer pushback due to its awkward design and privacy concerns.
Augmented Reality Market & Outlook
The global augmented reality market, valued at $32.1 billion in 2022, is projected to grow from $42.85 billion in 2023 to $432.35 billion by 2031, with a compound annual growth rate (CAGR) of 33.5% over the forecast period, according to industry data from SkyQuest.
A significant portion of the market is mobile AR, leveraging the widespread ownership of smartphones, tablets, and other mobile devices. As of this year, it’s projected that there will be 1.7 billion devices capable of supporting mobile AR. Notably, a key advantage mobile AR enjoys is the massive existing smartphone user base. Unlike the steep challenges AR glasses face, mobile AR benefits from “zero-cost” hardware, making its path to adoption relatively smoother. Growth is expected across both enterprise and consumer segments, including digital AR experiences. A well-known example is the 2016 video game Pokémon GO, where players explore their surroundings to find virtual characters on their phones. Additionally, collaborations between key market players and 5G providers to address latency issues are expected to fuel market growth.
Our Methodology
In this article, we reviewed online rankings and ETFs to determine 20 companies operating in the AR space. We then selected the 10 stocks that were the most popular among elite hedge funds. We sourced the hedge fund data from Insider Monkey’s database of 912 hedge funds, as of Q2 2024. Our focus was on companies that produce AR-related hardware, software, or technologies used in developing augmented reality products. However, we also included companies that offer services essential to the AR industry, like semiconductor chips.
At Insider Monkey we are obsessed with 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).
A software engineer using AutoCAD Civil 3D to create a 3D design in a modern office setting.
Autodesk, Inc. (NASDAQ:ADSK)
Number of Hedge Fund Holders: 55
Autodesk, Inc. (NASDAQ:ADSK), known for its professional 3D software programs like the widely-used AutoCAD, serves professionals such as engineers and architects worldwide for designing industrial components, buildings, and 3D models. One notable development in this area is Autodesk, Inc. (NASDAQ:ADSK)’s CAD-to-AR for the Autodesk Inventor, which integrates Unity Software’s game engine with an augmented reality engine, positioning Autodesk, Inc. (NASDAQ:ADSK) as a potential key player for creators in the AR field.
Autodesk, Inc. (NASDAQ:ADSK) reported first-quarter fiscal 2025 non-GAAP earnings of $1.87 per share, beating estimates by 5.06% and marking a 20.6% year-over-year increase. Subscription revenues, which make up 93.9% of total revenues, grew 11.5% year-over-year to $1.33 billion. Maintenance revenues, accounting for 0.8% of total revenues, fell to $11 million from $14 million in the same quarter last year. Meanwhile, other revenues, representing 5.4% of total revenues, rose 22.6% to $76 million.
Additionally, Baird reaffirmed its Outperform rating for Autodesk, Inc. (NASDAQ:ADSK) and maintained a price target of $289. This decision came despite a significant decline in the Architectural Billings Index (ABI) for May, which is often viewed as an indicator of market sentiment and valuation for the company. Baird’s commentary suggests that Autodesk’s fundamentals may not be as negatively impacted as in previous downturns.
However, on another front, activist fund Starboard Value has continued to apply pressure on the company after purchasing a $500 million stake. The activist investor believes that management changes could improve margins and investor relations, thereby enhancing the value of Autodesk, Inc. (NASDAQ:ADSK).
Polen Focus Growth Strategy stated the following regarding Autodesk, Inc. (NASDAQ:ADSK) in its Q2 2024 investor letter:
“Autodesk, Inc. (NASDAQ:ADSK) and Accenture were also notable absolute detractors in the quarter. With Autodesk, most of the stock’s price weakness came in April. The company announced that it would delay the release of its earnings and 10-K filing as it launches an internal investigation regarding its practices on some non-GAAP financial metrics. Upon further analysis, we were encouraged to hear that they were taking this very seriously and being very comprehensive in their investigation. Ultimately, Accenture announced it was closing the investigation and that no re-statements would be required. As discussed in the following section, we chose to exit the position in favor of a more attractive investment.
We sold our small position in Autodesk to help fund our purchase of Shopify. We still think Autodesk is an advantaged business, with 95%+ recurring revenue, dominant in its end market, and nice tailwinds behind digitization in that end market. It should be a durable grower over time, perhaps with continued fits and starts, but we found the risk-reward around Shopify to be more compelling.”
Overall ADSK ranks 9th on our list of the best augmented reality stocks to buy. While we acknowledge the potential of ADSK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ADSK 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.