One of the hottest technology trends you can find is virtual/augmented reality (VR/AR). That’s why the Breakthrough Tech Profits portfolio contains several of the highest-quality stocks in this exploding space.

VR/AR news surfaced this week that bodes well for our VR/AR portfolio holdings, two of which reported third-quarter earnings on Thursday, November 2. I provide the details below.

According to a report released Thursday, the global microdisplay market is on track to grow from $1.12 billion in 2016 to $4.56 billion by 2023, for a compound annual growth rate (CAGR) of 22.2%. The report was issued by research firm Stratistics MRC. Propelling the market is the booming demand for VR/AR.

Stratistics MRC asserted in its report that industrial and enterprise applications are expected to burgeon during the forecast period, due to the growing acceptance of VR/AR glasses for a wide variety of applications.

These end uses go far beyond gaming. They include on-the-job training, engineering, drug development and testing, movie making, military combat, aircraft operation, health care delivery, auto making, maintenance and inspection, freight loading… you name it.

That’s good news for our portfolio holdings that are focused on the VR/AR space: Himax Technologies (NSDQ: HIMX), Immersion (NSDQ: IMMR), MicroVision (NSDQ: MVIS), NVIDIA (NSDQ: NVDA), and Silicon Laboratories (NSDQ: SLAB).

First, let’s clarify our definitions. Virtual reality refers to computer-simulated reality that’s an immersive experience. Think video games.

Augmented reality is a real-time view of an actual physical environment whose elements are supplemented by computer-generated sensory input such as sound, video or graphics. AR increasingly entails enterprise applications for practical commercial uses. Now, let’s do the numbers.

Earnings Reports

MicroVision on November 2 reported third-quarter revenue of $6.09 million compared to $4 million in the same period last year. Earnings came in at -$5.24 million versus $4.07 million in the same period last year, for EPS of -$0.07 vs. -$0.08 in the same year-ago period. EPS was in line with consensus projections.

MicroVision’s expensive investments in new technologies will soon show up on the bottom line. The company makes scanning technology that provides high-resolution miniature projection, and three-dimensional (3D) sensing and image capture solutions. As such, MVIS benefits from VR/AR tailwinds.

Particularly promising is MVIS’ expanding presence in the Internet of Things market, where the company’s interactive display engine combines mobility display with 3D sensing.

Immersion on November 2 reported revenue for the third quarter of $11.9 million, down from revenue of $26.3 million in the same quarter a year ago.

Net loss for the third quarter of 2017 was $(5.3) million, or $(0.18) per share. This compares to net income of $7.0 million, or $0.24 per share, for the third quarter of 2016.

Some context is called for. Weighing on Immersion’s operating results was a one-time license fee of $19 million from Samsung (OTC: SSNLF) that IMMR recognized during the quarter.

Immersion remains the leading developer and licensor of touch feedback technology and it announced partnerships that bode well for future quarters. BTP portfolio holding Tencent Holdings (OTC: TCEHY) has licensed Immersion’s TouchSense technology to deliver next generation interactive experiences to its mobile applications. Additionally, Tencent also has licensed Immersion technology to incorporate haptics into its Super NBA game.

In the gaming VR/AR market, Immersion forged a licensing agreement with Yomuneco, enabling the addition of tactile feedback to its gaming applications using Immersion’s TouchSense Force Haptic Lab solution for the Unreal Engine design tool. Yomuneco is now developing a new VR role playing game scheduled for release in 2018.

The VR/AR Boom

The moneymaking opportunities of VR/AR are enormous. Goldman Sachs (NYSE: GS) estimates that the market for VR alone will reach $80 billion by 2025, with the potential for that figure to actually soar much higher to $180 billion.

Many of the companies developing VR hardware and software are among the biggest names in technology, including Apple (NSDQ: AAPL), Amazon (NSDQ: AMZN), Facebook (NSDQ: FB), Sony (NYSE: SNE), and our mega-cap BTP portfolio holdings Alphabet (NSDQ: GOOG) and Microsoft (NSDQ: MSFT).

A host of smaller players are emerging in the VR/AR space, but many are thinly capitalized and quickly burning through their cash reserves. Most of them will either get acquired or go belly up. I predict that a wave of VR/AR consolidation will soon hit.

However, one smaller company that I particularly like is Vuzix (NSDQ: VUZI). With a market cap of $104.2 million, the firm is a U.S.-based VR/AR pioneer, especially in the use of AR for business functions. Small caps should outperform in coming months, which makes Vuzix even more attractive.

Founded in 1997, Vuzix originally emphasized defense work but in 2012 sold off that division to focus on commercial applications for its AR products.

Vuzix M100 Smart Glasses are an Android-based wearable computer with several pre-installed aps, enhanced with an onboard processor, recording features and wireless connectivity. The M100 is designed for a wide variety of business-related functions. The company makes an upgraded and enhanced version called the M300.

Vuzix also builds customized smart glasses for Toshiba Client Solutions, a wholly owned subsidiary of Tokyo-based electronics firm Toshiba (OTC: TOSBF).

The analyst consensus is that Vuzix’s year-over-year earnings growth will reach 46.9% in the current quarter and 59.50% in the next quarter. My calculations call for earnings growth of about 38% in the current year, and about 46% next year.

I’m not ready to add Vuzix to the BTP portfolio just yet. The company is scheduled to report third-quarter earnings on November 13. I want to first take a close look at the company’s latest operating results. I’ve put the stock on my “watch list” and I’ll keep readers apprised of developments. To use VR/AR jargon, consider this a “heads-up.”

Additional Portfolio Updates

Cognex (NSDQ: CGNX) racked up another blockbuster quarter that broke records on the top and bottom lines.

The machine vision company on October 30 reported third-quarter revenue of $259.7 million, a year-over-year increase of 76%. That figure was on the high end of guidance of $250 million to $260 million. Gross margin of 76% was in line with guidance.

Earnings of $102.3 million represented a year-over-year increase of 91%. Earnings per share (EPS) came in at $1.14, compared to 61 cents in the same period a year ago.

Tesla (NSDQ: TSLA) fell Thursday by 6.80%, after the House of Representatives finally released its proposed tax overhaul. The bill fulfills Trump’s promise of stimulus by chopping the corporate tax rate from 35% to 20%.

However, the Republican tax bill also gores several sacred cows. Notably in Tesla’s case, the bill repeals the electric vehicle tax credit. The bill now faces fierce lobbying opposition and an uncertain future in the divided Congress.

22^nd Century Group (NYSE: XXII) announced Thursday that it had hired James Swauger, Ph.D., as the company’s Senior Vice President of Science and Regulatory Affairs. Dr. Swauger was previously the leader of the scientific and regulatory functions at Reynolds American (NYSE: RAI). The marijuana and tobacco biotech has been beefing up its research staff with seasoned veterans, always a good sign.