Will VR hardware help lift the Apple share price?

Demand for augmented reality and virtual hardware has been growing stronger than ever since the pandemic forced us to work and socialise remotely. While the metaverse is still in its early days, Apple, Meta and General Electric (GE) are just a few of the companies involved in the hardware space.

- Apple is set to launch an AR/VR headset in 2023 to rival Meta’s Quest products

- Zuckerberg has doubled down on his commitment to plough billions into building the metaverse

- Both tech giants are favoured by the HANetf ETC Group Global Metaverse UCITS ETF

As more companies look to monetise the metaverse, companies like Apple [AAPL], Meta [META] and GE Healthcare [GE] are developing hardware to enable people to interact with virtual elements in different settings.

Virtual reality (VR) and augmented reality (AR) – the overlaying of virtual information onto the real world – are the bedrock of metaverse projects.

Last week, Meta’s Quest 2 VR headset hit shelves in Germany for the first time in two years, following the resolution of a dispute with the country’s antitrust watchdog.

Apple is roaring into the arena with a mixed reality (a combination of AR and VR) headset, due to launch next year. It’ll be the Cupertino company’s first major new product launch since the Apple Watch was released in 2015.

GE Healthcare, which will be spun out and is expected to start trading under the ticker GEHC from 4 January, is to use startup MediView’s AR headset to help surgeons to better visualise a patient’s anatomy.

The Meta share price is up 1.5% in the past month through 12 December; the Apple share price is down 3.5%; the GE share price is down 3.6%.

AR/VR hardware to give services revenue a boost

While there’s much excitement around AR and VR, Meta is a cautionary tale of the risks investing in the metaverse presents. Its Reality Labs division reported a 49% year-over-year drop in revenue to $286m in the third quarter (Q3) of 2022 – lower sales of the Quest 2 headset were to blame. The unit also posted a $3.7bn loss for Q3 versus a $2.8bn loss in the prior quarter. Investors will be watching how the Quest 2 fares in Germany this quarter, and whether the lifting of a requirement for users to set up a Facebook account will make an impact on sales.

Apple’s venture into AR and VR should boost its services revenue, according to GlobalData senior analyst Anisha Bhatia. The segment grew just 5% in the quarter ended 24 September to $19.2bn, but accounted for 21.3% of total sales of $90.1bn.

Despite Meta’s Reality Labs losses, Mark Zuckerberg is determined to push ahead and lead the building of the metaverse. Expenses were up 24% year-over-year in Q3 and are expected to “increase meaningfully” next year.

Ark Invest associate portfolio manager, Sam Korus, argued in the firm’s newsletter that “if AR and VR do not scale to the mass-market, Meta’s current pace of investing could be a colossal mistake”.

The question for Apple is whether it can ultimately challenge Meta’s Quest headsets. Bhatia pointed out that Apple “rarely launches a product that is not on par with its standards,” so there should be no concern about the quality of the AR and VR experiences.

Bhatia argued that while expenditure may be a challenge for Apple at the onset, the company’s track record of delivering “market-leading expensive products” instill confidence in consumers, giving reason “to believe that Apple’s first foray into the VR headset segment will be a success”.

GE Healthcare won’t be developing or selling AR headsets directly. Having them as part of its offering, however, could lead to more hospitals paying for the company’s products and services.

Funds in focus: HANetf ETC Group Global Metaverse UCITS ETF

All of the major thematic metaverse funds have exposure to both Apple and Meta, but none hold GE.

Meta is the second-biggest holding in the HANetf ETC Group Global Metaverse UCITS ETF [METR.L] and Apple is the fifth-biggest. Their weightings are 4.76% and 4.46% respectively. The fund is down 15.8% since launching on 15 March of this year and flat over the past month.

Apple is the third-biggest holding of the Global X Metaverse ETF [VR], with a weighting of 8.30% as of 12 December. Meta has been allocated 2.31%. The fund is down 21.3% since launching on 18 March of this year and flat over the past month.

The Roundhill Metaverse ETF [METV] also favours Apple over Meta, which are its second and fifth-largest holdings with weightings of 7.86% and 5.80%, respectively. The fund is down 46.4% year-to-date but up 4.2% over the past month.