We recently compiled a list of the 10 Worst Augmented Reality (AR) Stocks According to Short Sellers. In this article, we are going to take a look at where InterDigital, Inc. (NASDAQ:IDCC) stands against the other AR reality stocks that short sellers do not recommend.
Augmented Reality (AR) has been an exciting development within the broader tech sector. AR offers a partly immersive experience to users through which they can interact directly with a 3D overlay onto the external reality in real-time. There are several interesting examples of AR usage in today’s tech sector, such as AR projections from phone devices, AR windshields on cars, and, perhaps most commonly, AR glasses. Suffice it to say this is a growing area within tech with immense potential, and there’s a lot of excitement surrounding AR players in the market today.
In our previous articles on AR stocks, we’ve covered some of the key players in this space, including notable tech titans. However, if you’ve kept up with developments in the AR space, you’d know that many investors are still considering this area to be a risky investment overall and are not convinced that the billions of dollars that are going into developing AR tech are justified. Because of this type of sentiment in the market, one of the major businesses in AR/VR today, Reality Labs, is undergoing loss upon loss and is unable to really make it back.
Investors Are Worried About the Future of AR Companies
On April 25, Rob Sanderson, managing director at Loop Capital, joined CNBC’s “The Exchange” to discuss Mark Zuckerberg’s increased spending in AR/VR. He noted that the company had been spending about a quarter’s worth of earnings on Reality Labs to build up the vision of the Metaverse, but there’s not a great return on investment for this spending, and nor are there any ways to justify it. Another interesting factor here is that despite the immense spending on Reality Labs and presumably the Meta Quest 2 headset, most tech experts who have gotten the chance to try out this headset believe that it loses out in competition with another, pricier headset – the Vision Pro. According to Joanna Stern, Wall Street Journal’s senior personal technology columnist, the Vision Pro is just not comparable with the Quest 2. The Vision Pro is winning in this race because it’s lighter, offers more seamless operability, and is just more user-friendly in terms of its features – all this despite the hefty price tag.
With the way things are, it’s unsurprising that investors are beginning to lose faith in Reality Labs and really can’t wrap their heads around the immense spending being done there. This type of concern is actually rampant across the board for many AR stocks in the market today, with several of these companies having the same issue of increased spending, which tends to throw investors in a panic because many of the companies operating in the AR space right now are actually quite small, and still have to prove their worth in the market. Considering this widespread concern, we’ve compiled a list of some of the worst AR stocks according to short sellers, so investors looking to buy into this space know where to put their money and which companies to absolutely avoid, at least for the time being.
Our Methodology
We first compiled a list of 20 AR stocks by sifting through ETFs and online rankings. We then selected the 10 stocks with the highest short interest and ranked them in ascending order of this metric. We have also mentioned the number of hedge funds holding stakes in each stock, as per Insider Monkey’s hedge fund data for the second quarter.
Why are we interested in 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 technician installing advanced cellular equipment at a 5G cell tower.
InterDigital, Inc. (NASDAQ:IDCC)
Number of Hedge Fund Holders: 29
Short Interest: 20%
InterDigital, Inc. (NASDAQ:IDCC) is an application software company based in Wilmington, Delaware. It offers wireless, visual, AI, and related technologies. Within the AR space, the company offers the AR-Bot, a system for robot navigation, alongside several full-color meta-grating solutions for single waveguide-based AR/VR near-eye display systems.
With a short interest of 20%, InterDigital, Inc. (NASDAQ:IDCC) is a stock that many short sellers consider to be a bad investment. One of the reasons for this may be the fact that the company has been involved in costly litigation with other companies, usually over patent infringement and licensing negotiations. One such legal dispute that InterDigital, Inc. (NASDAQ:IDCC) is embroiled in presently is its litigation against Lenovo.
InterDigital, Inc. (NASDAQ:IDCC) has also faced revenue fluctuations in the past, primarily because a major portion of its revenue depends on licensing agreements with other tech companies. Legal disputes and the need for renewals of licensing agreements may thus also negatively impact InterDigital, Inc.’s (NASDAQ:IDCC) ability to ensure a consistent revenue stream.
InterDigital, Inc. (NASDAQ:IDCC) was spotted in the 13F holdings of 29 hedge funds in the second quarter, with a total stake value of $154.3 million.
First Pacific Advisors mentioned InterDigital, Inc. (NASDAQ:IDCC) in its first-quarter 2024 investor letter:
“InterDigital, Inc. (NASDAQ:IDCC) is a research and development organization that develops and acquires wireless and video patents across key technologies. The company has a history of strong financial performance, opportunistically buys back shares, and pays a modest dividend. IDCC has been successfully renewing its wireless licensing agreements (Apple in 2022, Samsung in 2023) and has a growing stream of recurring licensing revenues across consumer electronics, internet of things (IoT) and automotive customers. CEO Liren Chen joined IDCC in 2021 from Qualcom and has been hiring other former Qualcom managers. The company bought back $338m of stock last year and authorized another $300m buyback in its Q4 2023 earnings release.”
Overall IDCC ranks 3rd on our list of the AR reality stocks that short sellers do not recommend. While we acknowledge the potential of IDCC as an investment, we believe that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IDCC 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.