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Investment Trends to Expect at CES

01/08/2018

NASDAQ:AMZN
NASDAQ:VUZIX
NYSE:F

CES, the world's largest consumer technology tradeshow, takes place this week. It has been the launch pad for many of today’s well-known products. For example, Amazon’s Alexa debuted last year at CES. Based on the panels and exhibitors registered to feature their products and technologies, key themes are likely to be augmented reality (AR), 5G, digital health, connected automobiles and the smart home, among others. So how can investors gain exposure to some of these technologies and innovations? Many of the companies discussed below are potential vehicles.

Manufacturers of smart appliances will exhibit products integrated with digital assistants, while others will show home assistant robots. Jibo, for example, is the world's first commercially available "social robot" digital assistant, while Buddy Companion Robot is another smart home robot. Last year, LG debuted its line of refrigerators integrated with Amazon's Alexa voice-activated assistant. This year, Amazon (NASDAQ:AMZN) is partnering with additional companies to integrate Alexa into a broad array of products.

Importantly, Amazon will have Alexa on display beyond the smart kitchen and smart home. In fact, the first AR smart glasses integrated with Alexa will be showcased at CES this year. The Vuzix Blade, which was awarded four International CES Innovation 2018 awards, can interact with a computer or smartphone and display data on the virtual screen in front of the wearer, enabling hands-free use of smartphones. Conveniently, users can put their phones in their pockets and still interact with the Blade, which can project images such as maps and directions, restaurant menus, weather and news updates, stock prices, sports information, social media communications and other data directly into the wearer's line of sight on the Blade‘s eyewear lenses. With a built-in camera, the Blade can also capture video and pictures in response to a tap or voice command. 

Overall, AR is expected to be one of the most discussed topics at CES, according to Investor's Business Daily (IBD) and other trade publications. CES officials have indicated that the AR exhibition area at CES 2018 will be 10% larger than at CES 2017. What is AR and how does it differ from virtual reality (VR)? IBD notes that AR “overlays digitally created content onto a user's real-world environment,” using either smart glasses or a smartphone's display. By comparison, according to Bloomberg, VR “submerses a user into a completely different digitally created world.”

According to Vuzix (NASDAQ:VUZI), the Blade is the only AR-enabled smart glasses that do not require programming and are also among the most fashion forward smart glasses available, weighing less than three ounces. As noted, the product was recognized with four International CES Innovation 2018 awards. These awards span a broad range of categories, which we believe underscores its versatility. Specifically, the Blade earned recognition in the categories of: Fitness, Sports and Biotech; Wireless Handset Accessories; Portable Media Players and Accessories, and Computer Accessories.

The Vuzix Blade can augment entertainment or enable the wearer to garner important information in real-time. In these ways, the Blade can enhance a consumer experience. In addition, AR and Vuzix AR-enabled wearable technology also play a key role in the workplace environment. For instance, logistics giant DHL has used other Vuzix products – the Vuzix M100 and M300 Smart Glasses – as part of its international AR smart glasses vision picking trials. 

Pickers in DHL facilities were equipped with smart glasses that displayed where each picked item needed to be placed, enabling hands-free order picking with reduced error rates, despite the faster pace of picking. DHL achieved average productivity improvements of 15% with AR-enabled smart glasses and still recorded higher accuracy rates and approval ratings by users.

Once the trials were completed, DHL decided to make AR “supported glasses now business-as-usual in warehouses around the globe,” reflecting productivity and accuracy improvements and reduced onboarding and training times. DHL noted that “the broad spectrum in which the technology can be applied across various sectors is exciting.” It enables more rapid and convenient implementation of manual operations and produces productivity gains.  

According to DHL, the AR and VR market is expected “to be the next big thing after smartphones,” with M&A advisory firm Digi-Capital predicting a total volume of $150 billion by 2020. DHL apparently is also researching additional applications for AR, such as training, maintenance and dimension calculations, among other uses.

At CES, there will also be a panel on digital healthcare. In this space, products on display will range from remote monitoring devices, to wearables and diagnostic solutions. The smartphone app-controlled Nightingale Sleep System and Homni Smart Sleep Solution are two smart sleep solutions that help users fall asleep. The Reliefband is a wearable device for drug-free relief of nausea.

As in prior years, automotive technology will be on display, including self-driving and green cars. The Chevy Bolt, the first 200+ mile range electronic vehicle (EV) priced below $40,000, debuted at CES 2016. With National Safety Council data showing that 2015 recorded the biggest annual increase in automobile-related deaths in 50 years and Google noting that 94% of domestic accidents involve human error, interest in self-driving technology is growing. Technology companies such as Google and automobile manufacturers including Ford, Volvo, Tesla and BMW, among others, are investing in autonomous driving technology. In fact, Ford (NYSE:F) has been developing and testing the technology for more than a decade and targets fully autonomous cars for ride sharing services by 2021. The auto-drive feature is seen as a way to increase passenger and pedestrian safety. 

A CES panel on 5G will debate the innovations that a successful global roll-out of 5G networks could enable. Major industry players have agreed on standards and AT&T intends to offer 5G in 12 markets by yearend 2018. Verizon is also planning a broad 5G rollout beginning in 2018. Last year at Mobile World Congress, Samsung exhibited 5G home routers that were capable of up to four gigabits per second, according to PC magazine.

CES 2018 will also feature a track entitled “The New World of Digital Payments” that will discuss blockchain, the underlying digital architecture that supports many digital cryptocurrencies. Blockchain is a decentralized and encrypted ledger that offers a secure method to store records and other information in a way that can be verified. Each block in the blockchain contains a hash – a digital fingerprint or unique identifier – and timestamped batches of prior transactions, as well as the hash of the previous block. The hash connects the blocks and prevents any block from being altered or inserted between two existing blocks. Each new block reinforces the verification of the previous block and therefore the overall blockchain. This characteristic is also believed to make it transparent if an attempted hacking tries to alter any part of the blockchain. According to IBM’s Blockchain For Dummies, blockchain architecture gives participants the ability to share a ledger that is updated, through peer-to-peer replication, every time a transaction occurs. Peer-to-peer replication means that each participant (node) in the network acts as both a publisher and a subscriber. Each node can receive or send transactions to other nodes, and the data is synchronized across the network as it is transferred. 

Blockchain is viewed as a secure option for financial transactions that also provides flexibility and scalability. Blockchain technology also has broader applications beyond cryptocurrencies. Among other features, it can be used to process transactions, manage medical records, and verify and confirm proof of ownership. Blockchain can also record and track intangible assets such as intellectual property, patents, copyrights, or branding. “Blockchain is a public ledger technology that uses digital signatures and cryptographic hashing to provide a record of secure transactions that cannot be altered,” according to TechRepublic. Specifically, blockchain is thought to be safe, immutable and transparent because no single person or party within the chain can alter the record without the agreement of all parties in the chain. Leading companies such as IBM and Mastercard have already adopted blockchain technology to protect transactions and American Express has launched instant blockchain payments for cross-border business-to-business payments.

Many of the themes discussed and showcased at CES are likely to be important in 2018 and beyond. Blockchain technology is of interest not only for maintaining the security of digital currency transactions, but potentially for a broader range of applications, as well. Consumer adoption of digital home assistants is likely to grow, we believe, and AR as shown in the Vuzix Blade is another interesting innovation that could change the way people and enterprise interact with technology. To benefit from some of the successful trends, investors could gain exposure to the shares of companies implementing new technologies, although many of the smaller companies discussed above are private. 

Of the publically traded companies, Vuzix shares might provide more direct exposure to potential AR adoption than would shares of larger companies involved in the space, in our view, given its relatively smaller size and focused operations. In fact, Vuzix shares were up more than 18% on Friday as news of the Alexa integration was released. The commercial launch of the Vuzix Blade is slated for the second quarter of 2018.

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