CES 2022: Investing in the Virtual World

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The recent CES in Las Vegas has attracted lots of attention in the investor world. In this video from “The Virtual Opportunities Show” recorded on Jan. 4, Fool analyst Asit Sharma and Fool contributors Demitri Kalogeropoulos and Jose Najarro discuss why they’re excited about the impact that some of the newest product releases might have in virtual niches as varied as entertainment, automotive sales, and digital assets. 

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Asit Sharma: Let us know what caught your eye this week when you’re reading through the news and your other incursion sources.

Demitri Kalogeropoulos: If you’re a consumer electronics nerd like I am, you know that the Consumer Electronics Show, the annual show is going off in Vegas this week, CES. It’s a big one. As a sign of the times, it’s interesting per our topic, it’s a hybrid CES this year. Last year it was fully virtual for obvious reasons, the pandemic. But now it’s got big in-person component and then a big virtual component too. A lot of excitement around there so I’ll be following that over the next couple of days. But I saw some interesting materials, companies previewing a bunch of the stuff that they’re doing in the virtual space on the consumer side. I just wanted to highlight a couple of these.

The car company, Hyundai is going to be letting visitors create these digital avatars and test-drive its newest concept cars in digital space, a little metaverse, if you could call it. I’ll be excited to see how that happens. Then there’s a company called bHaptics that is going to be shown off haptic gloves that are supposed to make this interaction with virtual objects much more real and that’s exciting too. I went to their website, they’ve got like vests and things like that, really cool ideas, a lot of innovation happening in that space. Then Samsung is presenting a new home decorating platform is going to be all in the VR world and all three of those I thought was really cool. I know that you and Jose are both follow this area a lot. You’ve seen a lot of this tech products got launched last year, but it looks like, I think 2022, this isn’t my crazy prediction, but I do think it’s pretty clear, it’s going to be a big year for innovative tech launches. We got this strong consumer demand, hot economy, and just lots of cash sitting on corporate balance sheets. I think we could see a lot of cool products come out this year.

Asit Sharma: I love the way being flushed with cash and in some ways can spur innovation. There this whole method of approaching valuation which can be critical of accompany that keeps too much of its cash on its balance sheet. If you look at the academic papers that have been written, I think since the ’50s through the 2020s, the ones that deal with valuation and are based on how a business uses its capital, almost always, there’s some searching for an optimal point of cash on the balance sheet, so you get penalized by investors if you hold too much cash. At some point in time give it up as a dividend. This is not just something that retail investors demand, but it’s something that is built into various models and these go back to, I think it’s the Chicago school economists. I want to say there from the ’50s who started this line of thinking. But I love it when companies stockpile cash on their balance sheet. One, because they actually have money for a rainy day. Let’s say this once in a lifetime pandemic. Or they’re not as pressured with their R& D. Sometimes they can pour a lot of resources into new areas. When you’ve got really big overarching trends that we do in the virtual opportunity space, it almost makes sense to have that excess capital. Maybe you’ve been innovating in this space and you figure out, hey, this is not where this company should be. Actually, this sensor technology would be better expressed as a haptic glove, so that Jose, and Demitri and Asit can do a high-five during the show. [laughs] They come with something great and they can feel it. Because innovation is not always something that you can optimize. This just a mini rant of mine. But I love that. I’m excited to see the article that come out of this show. Either you ever been to see CES in person? I’ve never gone but I’ve thought about it from time-to-time.

Jose Najarro: I haven’t gotten definitely something I would definitely want to go. But I want to piggyback in something both you guys just mentioned. I think haptics sensors are going to be such a huge player in this virtual reality market. I think Demitri, one of the first thing he mentioned was how Hyundai is creating this platform where you can test drive their vehicle. That to me, I wouldn’t do it, because one of the things when I like test track my vehicle, I want to feel, hey, what happens when I step on the pedal? But now if I have some vest or something that helps me feel that force when I feel the pedal, now that’s a reason for me to try it. I feel like many people will be sensors are just seeing more in the gaming side. Obviously it’ll be pretty cool playing some Call of Duty or something and you’re playing around and getting the feedback. But I think in just the overall consumer space, every time I think of this haptic sensors, I think of it like my family across the world or another country. Imagine, for example, my grandparents or somebody has one of those sensors and I can like physically hug them and feel that sensation. I feel like this virtual reality world can really bring a whole new market, not just in the gaming place, but just the consumer space can really grab so much usage from haptics sensors, and virtual reality.

Asit Sharma: That’s, I think, a really great overarching point that the technology that’s being developed in many of these spaces, you often hear it being criticized because it’s connected loosely with digital assets, but someone’s slap a label like cryptocurrency. Or are they slap label like gaming, which to some people still is pejorative, even though it’s such a big part of the global economy now and it provides, I think, an outlet for creativity in both creating games. The average person has those tools available now to do that on so many platforms. But also playing an interacting with people is a whole social aspect. But this is one of the stumbling blocks of investing is when you get too caught up in your opinion of an emerging technology and you poo-poo it. What you’re doing is you’re killing your own ability to imagine how that can contribute to, if not the greater good, at least the development of the economy or a society. This is something that I’ve suffered from a lot in my career as investor just hearing about technology and being reduced to absurd four-word maxims that I create on the spot.

Cryptocurrency is a scam. Is that false? Cryptocurrency is a scam. You can see some really knowledgeable billionaires who’ve been saying this forever and then stop there. You can just put up your mental roadblock and leave it as such. But whether digital assets expresses a form of currency, our ultimately an investable space is almost beside the point because that concept is drawing so much innovation.