AI-Powered Smart Glasses Take Center Stage

Meta (META) has poured billions into its Reality Labs division, chasing the elusive promise of virtual reality. Now, as the tech giant pivots its metaverse strategy towards smart glasses, investors are keenly awaiting the unveiling of its latest offering and, more importantly, gauging its potential for market traction.

The social media behemoth is slated to introduce its most sophisticated smart glasses to date at its annual Connect event on Wednesday. Dubbed “Hypernova” internally, these glasses reportedly feature a compact display controllable via hand gestures, facilitated by a neural technology-enabled wristband, as reported by CNBC in August. While a promotional video briefly surfaced on Meta’s YouTube channel before being removed, the anticipation surrounding the device remains palpable.

Priced at an estimated $800, Hypernova represents the next iteration in Meta’s ongoing partnership with EssilorLuxottica (EL-FR). This collaboration previously yielded the AI-powered Ray-Ban Meta smart glasses in 2023, followed by the Oakley Meta HSTN smart glasses unveiled in June. These earlier models integrated cameras, speakers, and microphones, allowing users to interact with Meta’s AI voice assistant for tasks such as capturing photos, recording videos, and playing music. Hypernova takes the integration further by adding a user-facing display, a feature previously missing from collaborative smart glasses.

The financial implications of Reality Labs’ ambitious projects have drawn scrutiny from Wall Street. The division, responsible for hardware endeavors like the Ray-Ban Meta glasses and Quest VR headsets, reported a staggering $4.53 billion operating loss in the second quarter alone. Since late 2020, cumulative losses have approached a massive $70 billion investment. This has led to questions about when, if ever, Reality Labs will turn a profit.

Justin Post, a Bank of America Securities internet research analyst, acknowledges that tangible returns from Reality Labs’ investments are likely years away. However, he emphasizes the need for “progress” demonstrating the “potential returns on investment.” Post believes that smart glasses currently represent a more viable avenue for investment compared to VR headsets, which remain a niche market with an uncertain trajectory. “Expectations are low for VR and high for AR glasses. Ultimately, we believe that AR glasses will be more commercially successful.”

“I’ve definitely seen the company’s focus shift from VR headsets to glasses,” Post stated. “At this point, the glasses are going to be much more impactful and more mass market.”

Meta declined to comment.

Hypernova marks Meta’s first foray into smart glasses equipped with a display for consumers. While the display is expected to be small and offer limited functionality, Hypernova serves as an intermediate step between the Ray-Ban Meta glasses and the more experimental Orion augmented reality glasses showcased at last year’s Connect event.

The Orion AR glasses, functioning in tandem with a wireless computing “puck,” can project 3D visuals onto the physical world for interactive experiences facilitated by a wristband. However, according to Anshel Sag, a principal analyst at Moor Insights & Strategy, while Orion AR glasses offer impressive visuals, its costs and complexity make it currently unfeasible for mass production.

“Delivering something like Orion at scale will take time, which is why they are still a prototype,” Sag explained. “I think a single display is a move in the right direction and would help build an ecosystem of apps.”

Leo Gebbie, an analyst and director at CCS Insight, views Connect as an opportunity for Meta to capitalize on the unexpected success of the Ray-Ban Meta glasses. EssilorLuxottica reported in July that Ray-Ban Meta smart glasses sales more than tripled year-over-year, highlighting a growing consumer appetite for this product category. The integration with existing Ray-Ban styles and brand recognition allows Meta to target the fashion-conscious, a new demographic for the company’s metaverse initiatives.

“It really feels like a chance to break through with a really new product category,” Gebbie said.

Analysts will also be looking for indications that Meta’s recent artificial intelligence-related strategic adjustments can bolster its hardware initiatives. Meta invested $14.3 billion into Scale AI in June as part of its strategy. Post suggests the glasses could be the ideal hardware platform for AI-powered features.

“If they get the integration right with devices, it really could be a better portal for AI than even phones,” he predicted, outlining the potential for personalized experiences and seamless integration into day-to-day lives.

To realize its vision for smart glasses, Meta needs to foster a vibrant ecosystem of developers creating compelling applications and software that resonate with users, Sag cautions. This will require providing developers with strong tools, APIs, and easy access to user data while addressing privacy concerns.

Gebbie warns that a consumer rejection of Hypernova and the broader category of smart glasses with displays presents a significant risk for Meta. The $800 price tag, more than double the starting price of the Ray-Ban Meta glasses ($299), could pose a barrier to entry for many consumers. Reports indicate that Meta has set modest internal sales expectations for Hypernova. It will want to see significant buzz generated by the unveiling if it is serious about the product category.

Meta envisions smart glasses becoming the next dominant personal computing platform. However, Apple (AAPL) and Google (GOOGL) continue to dominate the mobile landscape with their iOS and Android operating systems, respectively. The challenge is to disrupt these existing platforms and convince users to switch to a new computing device worn on their faces, with inherent privacy and social acceptance considerations.

It remains to be seen whether Meta’s glasses can unseat the smartphone’s dominance. Still, the threat is substantial enough that Apple and Google are actively developing their own competitive products. Apple is reportedly pursuing its own glasses project, while Google announced a $150 million partnership with Warby Parker (WRBY) in May to create smart glasses.

“The fact that everyone is now developing glasses suggests that Meta’s Reality Labs concept was well conceived, and they’re out in front at this point on glasses,” said Post. “The question for the competition is, can they leverage their mobile operating systems to get people to buy their glasses?”