Wall Street gets bullish on a surprising new AI play: Warby Parker

Warby Parker's shares surged after announcing a partnership with Google to develop smart glasses utilizing Google's Android XR and Gemini AI, with Google committing up to $150 million. Analysts are largely positive, citing potential for increased brand awareness, new revenue streams, and expansion into the growing wearables market, with price target increases suggesting further upside; however, some analysts remain cautious due to execution risks and the uncertain adoption rate of smart glasses.

Analysis

Warby Parker's strategic partnership with Google to develop AI-powered smart glasses, backed by a Google commitment of up to $150 million, has significantly boosted investor confidence, evidenced by a more than 15% share price surge following the announcement and a sustained 48% gain over the past month. The collaboration aims to leverage Google's Android XR operating system and Gemini AI, with the first products anticipated after 2025. This initiative is largely viewed positively by analysts, who see potential for enhanced brand awareness, a new revenue stream in the emerging smart glasses category, and an expanded total addressable market, which TD Cowen estimates could reach $2-4 billion in the U.S. by 2030, compared to Warby Parker's current last-twelve-months revenue of approximately $800 million. Google's $75 million investment in product development is also seen as de-risking the venture for Warby Parker. While the average analyst price target polled by LSEG suggests a modest 4% further upside, some analysts, such as Baird's Mark Altschwager and TD Cowen's Oliver Chen, project up to 18% upside with price targets of $24, citing benefits like increased customer lifetime value and Warby Parker's enhanced positioning at the intersection of technology and customer-centricity. However, caution persists among analysts like Citi's Paul Lejuez and Stifel's Jim Duffy, who maintain neutral or hold ratings with price targets of $22 and $21 respectively, highlighting the historically slow consumer adoption of smart glasses and inherent execution risks, despite acknowledging the potential for a more premium valuation and increased revenue growth from FY2026 onwards. Telsey Advisory Group's Dana Telsey anticipates the partnership could be a boon to store traffic as buzz builds around the AI-powered glasses.

Key Decisions for Investors

• Investors should assess Warby Parker's enhanced long-term growth profile stemming from its entry into the AI-enabled smart-wearables market via the Google partnership, while factoring in the product launch timeline extending beyond 2025.
• Monitor progress against collaboration milestones with Google and broader consumer adoption trends for smart glasses, as these will be key determinants of the venture's success and impact on Warby Parker's financials.
• Consider the current valuation following the significant share price appreciation against the consensus analyst upside of approximately 4%, weighing the potential for a re-rating based on a larger addressable market and AI integration against the noted execution risks and the nascent stage of the smart glasses market, acknowledging that some analysts project higher upside up to 18%.