Analysts expect that within 10 years, smartglasses will be more popular than smartphones. This is a big claim, and one that seems somewhat unrealistic given the close to 2.1 billion smartphone users globally, but it outlines a trend towards growth in what is essentially a brand-new market. Alphabet Inc (NASDAQ:GOOG) recognized this trend before almost anyone else, and tried to tackle the space with its Glass product. This is now essentially dead in the water, but there are a number of other wearable smartglasses available, and other wearable companies positioned to cater to the massive increase in demand forecast over the next five years. One of our favorites is Vuzix Corporation (NASDAQ:VUZI).
Vuzix has put together a strong portfolio of smartglasses and is selling them on the open market as we speak. The company is backed by some big names, most notably Intel Corporation (NASDAQ:INTC), which paid $25 million for a 30% stake in the company last year, in a direct bid to compete with what then looked like it might be the market leader, the above-mentioned Google Glass. With Glass on hold, Vuzix and Intel had a chance to pull ahead in the sector, and as we head into the second half of 2016, it looks as though it has done just that. The company sells around $3 million worth of its virtual reality and augmented reality headsets a year, and the sales trend points towards acceleration of this number across the coming quarters.
Earnings are set for report on August 15, and we believe the numbers could serve as a major upside catalyst on announcement.
So why is Vuzix so exciting? The company is a product first entity. It has designed some of the most powerful, and best looking smartglasses on the market, and has flagship products in both the augmented reality arena (the arena in which the new Pokémon Go! application has just taken the world by storm) and the virtual-reality gaming and movie arena (the arena in which Facebook Inc (NASDAQ:FB) paid $2 billion to acquire Oculus Rift).
Anecdotal evidence suggests that the Vuzix products in each of its target markets outshine other products in the space, and there are reports that SAMSUNG ELECTRONICS KRW5000 (OTCMKTS:SSNLF) is next in line to join Intel as a Vuzix backer.
This is a product driven space. Those who will be first adopters of this kind of technology don’t look to big names as indicative of quality, they look at the specifications of what’s in the box. Vuzix leads in this arena, and as such, has a real advantage.
As an investment opportunity, right now, there’s plenty of upside potential, but there’s also plenty of risk. Dilution could prove to be a massive problem going forward, with a number of warrants hanging over the 17 million share count waiting to drop on conversion. Cash on hand isn’t great, circa $8 million at last count, and we will almost certainly see further issue funding expansion moving forward.
That’s one of the only real downsides, however, on what could be one of the biggest upside potential stocks in tech right now. While the forecast stated in the introduction to this piece might seem overambitious, there’s no question that smartglasses and wearable virtual reality technology is going to be one of the fastest-growing subsectors of tech for the next 10 years, and we’re going to see some new big names emerge as leaders of the space. Vuzix is positioned to be one of them. That is, if Samsung doesn’t buy it out first, but we expect shareholders probably won’t be averse to picking up a nice premium on their early stage holdings on a big name acquisition deal.
One to keep an eye on.
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Disclosure: We have no position in VUZI and have not been compensated for this article.