One of the more interesting small-cap stocks which flew onto my radar in July is freshly public Chinese holographic augmented reality technology provider WiMi Hologram Cloud (NASDAQ:WIMI). Following a quiet April IPO, WiMi Hologram Cloud stock surged more than 700% higher in the first two weeks of July after the company issued a promotional press release which talked up the long-term potential of the global holographic AR market. Wall Street has simply been salivating.
Hype surrounding that press release has since faded. WIMI stock has dropped precipitously from its early July highs.
But I think that this selloff is a promising long-term buying opportunity.
From where I sit, this company is positioned as a hyper-growth, high-quality play on the holographic AR megatrend. And this megatrend could be one of the world’s largest growth trends in the early 2020s thanks to the global standardization of 5G connectivity.
In other words, I think WiMi Hologram Cloud stock is one of the best small-cap stocks to buy for potentially huge gains over the next few years.
Here’s why.
The Holographic AR Megatrend
Holographic tech is the stuff of science fiction fame.
Star Wars. Back to the Future. Total Recall. All of these science fiction classics employed some usage of holograms. Holographic messaging and gaming in the Star Wars franchise. Holographic advertising in Back to the Future, and holographic sports in Total Recall.
But the application of holographic AR technology to the real world hasn’t lived up to the hype.
Holographic messaging, gaming, advertising and sports are relatively obscure. Why? Because the world does not have the network capacity to handle the load that seamless holographic AR requires. According to Qualcomm (NASDAQ:QCOM), your average video call requires just 2 Megabits per second of bandwidth. AR/VR applications require several hundred megabits of bandwidth.
No wonder that 40% of industry insiders say that “poor user experience” has been the No. 1 obstacle to consumer adoption. Infrastructure shortcomings have stymied the proliferation of holographic AR tech.
Until now.
Until 5G.
5G — with its huge advancements in connectivity, speed and network capacity, and its equally huge reduction in latency — will unlock a new era of seamless holographic AR tech, wherein such tech can be used everywhere, all the time, without glitches.
To that end, the global standardization of 5G connectivity over the next few years will spark an era of explosive growth in the holographic AR market. Holographic advertising, gaming, messaging and sports will become widespread.
Indeed, according to Frost & Sullivan, the global holographic AR market should expand by more than 1,250% to $500 billion by 2025.
WiMi Is a Pure Play With Huge Growth Potential
WiMi is at the epicenter of all this growth.
The company has created an end-to-end technology platform to power all sorts of holographic experiences. And today, it has a specific focus on advertising and entertainment. WiMi is, by most metrics, the No. 1 holographic AR tech company in China. It has a huge first-mover advantage in the market and a robust technological moat to sustain its leadership.
Specifically, WiMi is the No. 1 holographic AR tech company in China in terms of revenue, with $46 million in revenue in 2019. It’s also the No.1 company in terms of clients (153 customers) and holographic content (4,600 ready-to-use holograms). Importantly, WiMi also has the most software copyrights in this space (214) and the most registered patents (132), ensuring an enduring technical advantage in a highly technical space.
Thanks to these early advantages, WiMi should be able to grow with the Chinese holographic AR market over the next several years.
WiMi Hologram Cloud Stock Will Thrive in China
That puts WiMi at the heart of one of the world’s biggest growth markets. How? China’s holographic AR market is expected to grow by nearly 3,700% between 2019 and 2025. Experts think it will hit $65 billion by 2025.
If WiMi just earns 0.5% share in that market, you’re talking about a multibillion-dollar company in terms of revenue.
Meanwhile, gross margins in this tech company are strong (up near 60%) while operating margins have hovered around 40% for several years. So, at scale, several billions of dollars in revenue could translate into hundreds of millions of dollars in net profits.
This is a $570 million company today, meaning WIMI stock is trading at about one times its earnings potential by 2025.
Of course, the implication there is that WiMi Hologram Cloud stock could soar over the next few years as all of that long-term growth potential materializes on the income statement.
Bottom Line on WiMi Hologram Cloud Stock
WIMI stock is an explosive small-cap stock that is a speculative pure play on the global holographic AR megatrend, with a specific focus on the hyper-growth Chinese vertical.
I think that makes for an interesting long-term investment opportunity. I see the holographic AR megatrend really taking off between now and 2025 thanks to the global standardization of 5G.
If it does, WIMI stock — as one of the market’s only pure plays on the space — could soar.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold any positions in any of the aforementioned securities.
