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The tech industry is driven by the constant development of new technologies. Eagle-eyed investors who spot those winning advancements can often profit by investing in the right companies.
However, it can be tough to separate the winners from the losers without a proper understanding of the underlying technologies. So today I'll discuss three next-gen technologies and the easiest ways to invest in their growth.
Image source: Getty Images.
Facial recognition
Facial recognition technologies are often used to secure devices or identify people. Research firm Markets and Markets expects this nascent market to grow from $4.1 billion to $7.8 billion between 2017 and 2022, fueled by rising global demand for better biometric security and surveillance technologies.
Facial recognition works by using vertical-cavity surface-emitting lasers (VCSELs), which project thousands of low-power lasers onto a surface to "see" its 3D shape. A promising supplier in this market is Finisar (NASDAQ: FNSR), which generates most of its revenue from fiber optic components.
Sales of Finisar's fiber optic components have been weak over the past few quarters due to a cyclical slump in China. However, Finisar recently started shipping VSCELs to offset those declines. Its top customer is Apple (NASDAQ: AAPL), which uses its VSCELs to power the iPhone X's TrueDepth camera and the AirPods' proximity-sensing capabilities.
Over the next few quarters, Apple plans to significantly increase its orders of VSCELs, all of which will come from Finisar's new plant in Sherman, Tex. Apple also awarded Finisar $390 million from its Advanced Manufacturing Fund last December, and claims that the commitment will make Finisar's Sherman plant the "high-tech VCSEL capital of the U.S."
Augmented and virtual reality
VSCELs are also widely used in augmented reality (AR) headsets, which project digital overlays on real-world objects. However, a broader way to gain exposure to both the AR and virtual reality (VR) markets is Himax Technologies (NASDAQ: HIMX). Himax is the market leader in the liquid crystal on silicon (LCOS) and wafer-level optics (WLO) components for AR and VR devices.
Image source: Getty Images.
LCOS projectors are used to project images on surfaces close to the user's eye. Himax supplies these chips for Alphabet's Google Glass and Microsoft's HoloLens -- two of the most widely recognized AR headsets in the world. Alphabet also owns a 6% stake in Himax.
The WLO process produces cost-effective, miniaturized optical chips that significantly shrink down camera modules for consumer electronics. Apple already uses Himax's WLO chips to power the iPhone X's Face ID capabilities, and the chips can be used alongside other components to power other 3D-sensing devices. In the VR market, Himax supplies timing controllers, OLED driver integrated circuits (ICs), and power ICs for high-end headsets like Facebook's Oculus Rift and HTC's Vive.