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 Snap Inc. (NYSE:SNAP) 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 young adult family using a Camera to record moments of their daily life.
Snap Inc. (NYSE:SNAP)
Number of Hedge Fund Holders: 44
Snap Inc. (NYSE:SNAP), a key player in the Internet content and information industry, stands out among augmented reality stocks. The company is best known for its filters and lenses, which highlight the entertainment aspect of AR. Additionally, Snap Inc. (NYSE:SNAP)’s subscription service, Snapchat+, has been growing rapidly, reaching 9 million subscribers in the first quarter of 2024. The company aims to increase this number to 14 million subscribers by the end of the year.
On July 18, BMO Capital Markets has maintained its Outperform rating on Snap Inc. (NYSE:SNAP), keeping the price target steady at $20. The firm’s analysis highlighted a rise in user engagement following recent improvements in content ranking and recommendation algorithms. Additionally, Snap Inc. (NYSE:SNAP) is seen as poised to benefit from a reallocation of advertising spending, with an expected $100 million increase in revenue for the second half of 2024 as advertisers shift funds away from TikTok. The launch of Sponsored Augmented Reality Filters and enhancements in targeting and measurement tools are also anticipated to draw significant advertising investments, especially around major events like the upcoming Olympics in Paris.
Snap Inc. (NYSE:SNAP) reported strong second-quarter 2024 results, highlighted by a 16% year-over-year increase in total revenue, reaching $1.24 billion. The company demonstrated significant user engagement, with over 850 million monthly active users and 432 million daily active users. Advertising revenue, which makes up the majority of total revenue, rose 10% year-over-year to $1.13 billion. Looking ahead, Snap Inc. (NYSE:SNAP) expects third-quarter revenue growth of 12% to 16% and an estimated Adjusted EBITDA between $70 million and $100 million.
RiverPark Large Growth Fund stated the following regarding Snap Inc. (NYSE:SNAP) in its first quarter 2024 investor letter:
“Snap Inc. (NYSE:SNAP): SNAP was our top detractor in the quarter despite reporting fourth quarter results generally in line with or better than expectations. Revenue growth of 5% was roughly in line with investor estimates and at the high end of guidance, and EBITDA of $159 million was $49 million better than estimates. Daily Active Users (DAUs) were also ahead of investor expectations, ending the quarter at 414 million (about 2 million better), driven by continued innovation in Snap’s offerings. Revenue guidance for 1Q24 was also roughly in line with investor estimates, but EBITDA guidance of negative $55-95 million was well below estimates. The company pointed to increased infrastructure costs and a US focused marketing campaign for the lower-than-expected margin guidance.
Although the company continues to face near-term macro headwinds, we believe SNAP can accelerate its revenue growth over the next several years. With 2023 revenue expected to be $4.6 billion (as compared with Meta’s $134 billion), we believe SNAP has a long runway for both revenue growth and expanded profitability as it improves platform functionality, continues to grow its audience (daily active users continue to grow at a double-digit rate), and expands its monetization.”
Overall SNAP ranks 10th on our list of the best augmented reality stocks to buy. While we acknowledge the potential of SNAP 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 SNAP 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.