Meta’s Orion Smart Glasses Could Be Revolutionary: Is the $2 Trillion Club in its Future? | The Motley Fool

The stock of Meta Platforms (META 0.68%) has been on fire this year, but not because of its Metaverse efforts, as the companies’ new name implies. Rather, Meta’s core social media ad business has recovered nicely from the 2022 slump, helped along by smarter artificial intelligence algorithms. Speaking of AI, Meta’s open-source Llama large language models (LLMs) have also made headlines this year. In turn, Meta is now regarded as a major AI player.

With so much going on in AI, investors seem to be looking past its Metaverse segment. That may seem odd, as the company once known as Facebook changed its name to Meta in 2021. With the company’s Reality Labs segment continuing to lose billions of dollars every quarter, investors may have written off the effort.

But last week, Meta unveiled Orion. While still in prototype, this augmented reality (AR) glasses product has the potential to be a real game-changer, finally, for Reality Labs and Meta at large.

Orion looks like regular glasses

At its Connect 24 developer conference last week, Meta unveiled Orion, a new AR headset that look and feel like regular, transparent glasses. Orion is actually big step forward over Meta’s previous offerings. Meta’s Quest VR goggles don’t look like regular glasses and aren’t transparent. Meanwhile, last year’s unveiling of Ray-Ban smart glasses did have transparent lenses while offering photo and video-taking capabilities, but lacked comprehensive computing capabilities found on smartphones.

Orion offers a glasses-like look and feel similar to the Ray-Ban glasses, but with advanced holographic AR capabilities that project right onto the lenses. So the glasses offer smart AI computing, but the wearer can still see through the lenses to their immediate surroundings.

Meta AI is also embedded in the glasses’ technology, enabling more use cases. For instance, the company gave an example of someone looking into their refrigerator, then asking Meta AI to come up with a recipe based on what foods were viewed through Orion.

This seems like Meta’s first real device consumers may wear around in their regular lives, potentially replacing some smartphone use cases.

True smart glasses may be a real game-changer

The reason Meta is spending so much of the Metaverse is that it wishes to own the next ubiquitous computing platform. Currently, Meta must run its apps on competitors’ devices, most notably Android and iOS smartphones.

CEO Mark Zuckerberg estimates this arrangement costs Meta billions of dollars in lost revenue every year. In the past, he cited Apple (AAPL 1.72%) as costing Meta roughly $10 billion in revenue in 2022, after Apple unveiled more stringent privacy measures around data collection on iPhones. While Meta has done an impressive job using AI to enhance its engagement and ad targeting despite those data restrictions, in a more recent interview, Zuckerberg said Meta’s internal studies still conclude Meta would still be “way more” profitable without Apple’s restrictions.

This is how Reality Labs pays off

Meta’s Reality Labs segment is currently running at a stunning $18 billion loss-rate this year, and investors have a hard time figuring out how Meta will eventually get a return on all that spending.

While improved devices such as Orion should lead to more hardware sales, that’s not the only reason or maybe even the main reason Meta is doing this. Disintermediating Apple and Android could unlock billions in high-profit revenue, just from running Meta’s Facebook, Instagram, and WhatsApp properties natively on its own platform.

Furthermore, Meta’s hardware efforts could yield interesting breakthroughs when combined with its work in AI. After last week’s event, Rosenblatt analyst Barton Crockett raised his price target on Meta shares from $643 to $811. While his note was mostly geared toward how AI benefits the core advertising platforms, he came away impressed with the new hardware too, which, in his words, showed Meta is, “uniquely delivering category products that could be described as leading in consumer adoption.”

Orion isn’t out yet, but bodes well for the long-term

It should be noted that the Orion glasses are still in prototype, and currently in testing with internal Meta employees and a select group of developers.

Still, if Orion eventually makes its way onto shelves in the next year or two, it could finally be a needle-moving moment for Meta’s Reality Labs segment. The glasses are the results of “dozens of innovations” around miniaturization and packaging components down to mere millimeters apart, according to Meta.

That sounds hard to do, and with Meta spending so much money on this effort, Orion may be difficult for other companies to match, even those as large as the Magnificent Seven.

Trading at just 23.5 times next year’s earnings estimates, even when discounting tens of billions in Metaverse losses, and Meta stock still looks very buyable here — especially as its hardware division may finally be showing some long-awaited breakthroughs.