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Virtual & Augmented Reality: A Dive into the Unknown

Virtual reality and augmented reality are set to drastically change both education and industry, but how can investors benefit from the looming growth in the sector?

07/12/2017

Sam Huxtable

Sam Huxtable

Assistant Portfolio Manager

In 1999, Ray Kurzweil postulated that technological change will continue to occur at an exponential rate until singularity is achieved; which is the invention of artificial super intelligence that will trigger runaway technological growth and unimaginable changes to human civilization. How could the invention of Virtual Reality (VR) and Augmented Reality (AR) change education and industry? How could investors benefit from the looming growth in the sector?

Firstly, what are VR and AR? VR is the creation of a completely immersive virtual world accessible through a headset. The ultimate goal for the creators of VR is to build a virtual world that is indistinguishable and isolated from the real world. Conversely, AR can be described as a blend between the virtual and real world. Developers create images which can be projected onto an image of the real world through a device such as a smartphone or perhaps ‘smart glasses/spectacles’ like Google Glass. The possible medical applications are vast, especially in mental health. For example, there are now ample studies that find the introduction of VR technology reduces the symptoms of Post Traumatic Stress Disorder on a statistically significant scale by allowing the patient to visualise and re-experience similar events. Likewise, there is further evidence that exposing patients suffering from disorders ranging from psychosis to anxiety, to VR technology provides significantly positive results.

Virtual robotic surgery is another ground-breaking use of VR technology where surgeons could perform operations remotely through a robotic device. This has been demonstrated through the Da Vinci surgical system. Furthermore, hospitals are already adopting VR technology to train their surgeons by performing virtual surgeries on virtual patients. The list of professions that would benefit from using VR for education or training is certainly not limited to surgeons either: pilots, plumbers, builders, athletes, engineers, architects, military, emergency services to name a few. VR could be used widely in schools in a variety of subjects as using textbooks to explain complex theories is becoming increasingly archaic and uninspiring to younger generations. Why try to explain what Elizabethan England was like when each pupil could experience The Golden Era for themselves?

Undeniably there will be mass disruption in some industries, real estate is a great example. The current concept of an estate agency could undergo radical change simply due to buyers having the ability to view houses via VR in contrast to physically visiting the property. The full effects on the industry are hard to predict, but the incentive to pay hefty fees to the agents would diminish. This may come as good news to anyone who has experienced the London housing market.

Simply put, there are a lot of potential uses for VR/AR the majority of which we can only begin to fathom. As is often the case with breakthrough inventions, VR/AR’s true worth will not be realised immediately and will take years, or more likely decades, to fully come to fruition.

The International Data Corporation (IDC) has estimated that spending on VR/AR products will total $215 billion in 2021, up from $11 billion in 2017. If these estimates are accurate, the sector is an exciting investment opportunity. Ultimately, the industry is in its infancy and it is difficult to determine who will be the biggest benefactors of an expansion in VR/AR technology across a range of industries as opposed to solely gaming. One possible investment route would be through the parts manufacturers, such as microprocessors. The main barrier to VR/AR permeating through society is the same as most technologies encounter on the way to mass adoption – cost. Automobiles, mobile phones and computers all had the same initial problem, they were simply too expensive for the average household, school or company to afford. As the rudimentary theory of economies of scale plays out, the cost to the producer and therefore the consumer will undoubtedly fall as production increases.

Aside from the economics, there is a psychological barrier to overcome as well. Will the general population be attracted to the idea of isolating yourself – in the case of VR – in order to access an alternate reality? Will the masses want to augment their perception of the real world by using a product such as Google Glass. People may feel uncomfortable with the idea of becoming a pseudo-robot of sorts (Arnold Schwarzenegger in the film Terminator comes to mind). In reality, as time progresses younger generations will become far more accustomed to VR/AR as an integral part of life, similar to millennials (myself included) with smartphones, computers and the internet.

There are many potential uses and issues that will arise from a rapid expansion of VR/AR technology, many of which are not covered in this article or are unfathomable at present. It is also unclear how quickly adoption in other industries outside gaming, will take place. The day the human race is eclipsed by artificial intelligence may seem closer as a result, but that has been the case with every invention since the computer and VR/AR certainly isn’t the knockout punch. There are few moments in time that change the trajectory of human existence for generations to come, I believe this is one of those moments and we should all be excited.

Author

Sam Huxtable

Sam Huxtable

Assistant Portfolio Manager

Sam joined in 2015 as an Assistant Portfolio Manager, having started his career at Brewin Dolphin. He graduated from University of Birmingham with a BSc in Economics in 2014. Sam holds the Investment Advice Diploma and is currently a CFA Level III Candidate. He is the technology analyst for the Direct Equity committee and is an active member of the Hedge Fund Committee. 

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

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