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Zhitong Finance APP learned that CITIC Securities released a research report that AI smart glasses, as wearable devices, bring epoch-making high efficiency to consumers at low cost. It is currently recognized by the industry as the most cost-effective hardware implementation solution for AI, with huge potential space. However, considering that the five major factors of blockbuster products + attention + shipments + penetration rate + performance have not yet been met, CITIC Securities believes that 2024 is the key turning point in the field of AI smart glasses. In the short term, since the short-term shipments of AI smart glasses are only at the million level, the corresponding performance elasticity of domestic suppliers is relatively low, so investment in AI smart glasses is more inclined to thematic investment, and related catalysts are worthy of attention.

Why we should pay more attention to AI smart glasses now: blockbuster products are selling well + the turning point is approaching.

AR glasses currently face an impossible triangle of performance, portability, and cost. CITIC Securities believes that their development rhythm is: spatial projection AR (geek product) → AI glasses (wearable device) → AR (computer). As a wearable device, AI smart glasses bring epoch-making high efficiency to consumers at a low cost. They are currently recognized by the industry as the most cost-effective hardware implementation solution for AI. At the same time, AI smart glasses technology is gradually maturing, with many players participating, and products being launched one after another. The potential space is huge (according to CITIC Securities' estimates, the market size of the traditional glasses market alone in 2023 will be close to the size of the global smartphone market in 2012). In addition, the blockbuster product Ray-Ban Meta has been selling well since 2023 (CITIC Securities expects that more than 1 million pairs will be sold in 2024). With the rapid iteration of AI technology in 2024 and the launch of AI smart glasses products, the attention on AI smart glasses has increased. CITIC Securities believes that the trend of AI smart glasses has arrived, but there is no consensus yet. 2024 is the critical turning point. Whether AI smart glasses can become a consensus among the industry and consumers requires continuous promotion from global AI leaders and consumer electronics companies.

Is the AI ​​smart glasses sector worth investing in: The potential replacement space is huge, the trend has come and is gradually forming a consensus.

First, by reviewing the reasons for the success of past consumer electronic products, CITIC Securities believes that mobile phones are necessities, and consumers pay for mobile Internet + intelligent upgrades. According to CITIC Securities' calculations, on average, the price of smartphones is 5-10 times higher than that of feature phones, with annual sales exceeding 1 billion units; headphones are standard products, and consumers pay for true wireless + noise reduction + spatial audio upgrades. The price of TWS headphones is 5-10 times higher than that of wired headphones, with annual sales of nearly 300 million units; watches are non-necessities, and consumers pay for sports + health testing, with annual sales of smart watches/bracelets of nearly 200 million units; and the poor sales of AR glasses in the past were mainly because these products were more of an itch-point innovation, and they were expensive and the technology was immature, making it difficult for investors to pay for them.

Secondly, according to iResearch data, nearly 4.4 billion people in the world wear myopic or aging glasses. According to statista data, the global glasses market size will be US$184.09 billion in 2023, close to the smartphone market size of US$232 billion in 2012. In 2023, the annual sales of sunglasses alone will be about 850 million pairs. CITIC Securities expects that with the continuous iteration of AI smart glasses, AI smart glasses will become a part of the daily life of people with vision correction problems, and for other people, it may become a fashionable incremental product similar to watches. CITIC Securities estimates that the shipment of 50 million pairs of AI smart glasses will increase the market value of leading companies in each link by 30-120 billion yuan.

Finally, CITIC Securities believes that the core reason why consumers will pay for AI smart glasses in the future is that AI smart glasses can not only make the basic glasses at a low cost, but also provide instant and continuous AI response through the integration of hardware and software (near-eye display + all-weather headphones + camera + AI), bringing great efficiency improvement to users.

How to invest: Thematic market → Individual manufacturer’s α market → Sector β overall main line market.

CITIC Securities reviewed the TWS headset market and found that blockbuster product releases + market attention + shipments + penetration + performance are the five key factors in the development of TWS headsets. In the early days of TWS headsets, the direct beneficiary manufacturers had α, and the performance of related stocks had short-term catalysis. The overall β market of the sector began in the outbreak period, and the performance of the anchor industry chain broke out. In addition, through analyzing the above five factors of the AI ​​glasses industry, CITIC Securities believes that from the perspective of the time cycle, for AI smart glasses, the current situation is more like the 2015-2016 of the TWS headset industry. The AI ​​smart glasses sector is expected to go from thematic market → individual manufacturer α market → sector β overall main line market.

In terms of investment, in the short term, due to the short-term shipment volume of AI smart glasses at the million level, the corresponding performance growth of domestic suppliers has not yet shown obvious elasticity. Therefore, CITIC Securities believes that the current stage of investment in AI smart glasses is more of a theme market with valuation enhancement. It is recommended to focus on event-driven, theme fermentation, and high-certainty performance. In the medium and long term, CITIC Securities believes that 2024 is the key turning point of the industry. With the release of blockbuster products and the continuous increase in market attention, individual manufacturers are expected to benefit from the introduction of blockbuster products and usher in the α market; afterwards, with the release of other blockbuster products, the continuous increase in market attention, a substantial increase in shipments, an inflection point in penetration, and elastic performance, the sector as a whole will usher in the main line β market with both rising profits and valuations. Therefore, from a medium and long-term perspective, CITIC Securities recommends paying attention to the links with the highest value share and the best pattern in the industrial chain. According to data from Wellsenn XR and AR circles, among the links with the highest cost share and the best pattern of AI smart glasses, assembly is the greatest common divisor; SOC (System on Chip), display, optics, storage, and camera are the links with a relatively high cost share.

Risk factors:

Downstream demand is lower than expected; raw material prices fluctuate or supply is insufficient; technological innovation is lower than expected; exchange rate fluctuations; intensified competition in the AI ​​smart glasses industry; geopolitical risks; the risk of comparing the market conditions of different products, etc.

Investment strategy.

In terms of industry trends, AR glasses currently face an impossible triangle of performance, portability, and cost. CITIC Securities believes that the pace of its development is: spatial projection AR (geek product) → AI glasses (wearable device) → AR (computer). As a wearable device, AI smart glasses are low-cost and bring epoch-making efficiency to consumers. They are currently recognized by the industry as the most cost-effective hardware implementation solution for AI. At the same time, AI smart glasses technology is gradually maturing, with many players participating, and products being launched one after another. The potential space is huge (according to CITIC Securities' calculations, the market size of the traditional glasses market alone in 2023 will be close to the global smartphone market size in 2012). In addition, Ray-Ban will be launched in 2023. Meta is hot-selling. With the rapid iteration of AI technology and the launch of AI smart glasses products in 2024, the attention to AI smart glasses has increased. Therefore, CITIC Securities believes that the trend of AI smart glasses has arrived, but considering that the five major factors of blockbuster products + attention + shipments + penetration rate + performance have not yet been met, CITIC Securities believes that for AI smart glasses, the current situation is more like the 2015-16 period for TWS headphones. 2024 is the key turning point for the AI ​​smart glasses industry. There is no consensus yet. The key lies in the promotion of AI leading companies and consumer electronics leaders.

In terms of investment, in the short term, since the short-term shipment volume of AI smart glasses is only in the millions, the corresponding performance elasticity of domestic suppliers is relatively low, so it is more inclined to thematic investment. It is recommended to pay attention to the beneficiaries with higher performance certainty, such as the subsequent release of blockbuster products of AI smart glasses, event-driven, theme fermentation, etc.; in the medium and long term, with the successive release of blockbuster products + the continuous increase in market attention, some manufacturers are expected to benefit from the introduction of blockbuster products and usher in the alpha market; afterwards, with the successive release of other blockbuster products + a substantial increase in shipments + an inflection point in penetration + elastic performance, the sector as a whole will usher in the main beta market with both rising profits and valuations. Therefore, from a medium and long-term perspective, CITIC Securities recommends paying attention to the links in the industrial chain with the highest value share and the best structure. It is recommended to pay attention to three main lines:

1) Targets that benefit from subsequent AI smart glasses blockbuster product launches, event-driven, theme fermentation, etc.;

2) Beneficiary targets with higher performance certainty;

3) Core suppliers correspond to the industrial chain links with the highest value share, optimal structure, best profitability and greatest performance elasticity.