What is the latest update in the XR market?

Q4 2025 was a turning point for the XR market, with Android XR launching and the entire industry pivoting from bulky VR headsets toward lightweight AI-powered smart glasses.

We constantly update this blog post with the latest developments, so you always have fresh insights on virtual reality headsets, augmented reality glasses, and enterprise XR software.

And if you want to better understand this new industry, you can download our pitch covering the XR market.

Summary table of the most important updates in the XR market

We define the XR market as all head-worn devices that blend digital content with the real or virtual world, plus the software and services built specifically for those devices.

We include virtual reality headsets, mixed reality and augmented reality headsets or glasses, their app stores and content, and associated enterprise software and support services.

We exclude smartphone- or tablet-only AR experiences, flat-screen "metaverse" platforms, core semiconductor and component revenues, and general-purpose PCs or consoles used to run XR content.

You can also get all the latest market news for the month here.

News	Category	Date	Source
Samsung launched Galaxy XR, the first Android XR headset, at $1,799	Product launches	Oct 21, 2025	Tom's Guide
Meta slashed Reality Labs budget by 30%, pivoting away from metaverse	Restructuring	Dec 4, 2025	Bloomberg
Sesame raised $250M for AI smart glasses from Oculus founders	Fundraising	Oct 21, 2025	TechCrunch
Meta hired Apple's design chief Alan Dye for Reality Labs	People	Dec 3, 2025	TechCrunch
Apple paused Vision Pro successor, pivoting to smart glasses	Company updates	Oct 2, 2025	PYMNTS
Valve announced Steam Frame standalone VR headset for Q1 2026	Product launches	Nov 18, 2025	GameSpot
IDC forecasted VR headset market to decline 42.8% in 2025	Market Research	Oct 2025	The Register
Smart glasses shipments surged 247.5% as category breaks out	Market Research	Q4 2025	IDC
Microsoft retired Mesh mixed reality platform	Failures	Dec 1, 2025	Directions on Microsoft
Meta paused third-party Horizon OS headset program with Asus, Lenovo	Failures	Dec 17, 2025	TechRadar
Netflix acquired Ready Player Me avatar platform	M&A	Dec 19, 2025	TechCrunch
Meta acquired AI wearable startup Limitless for smart glasses	M&A	Dec 5, 2025	TechCrunch

How is the XR market doing now?

How do we define the XR market?

We define the XR market as all head-worn devices that blend digital content with the real or virtual world, plus the software and services built specifically for those devices.

We include virtual reality headsets, mixed reality and augmented reality headsets or glasses, their app stores and content, and associated enterprise software and support services.

We exclude smartphone- or tablet-only AR experiences, flat-screen "metaverse" platforms, core semiconductor and component revenues, and general-purpose PCs or consoles used to run XR content.

This is also the definition we use in our report covering the XR market.

How big is the XR market in 2026?

Based on our analysis, the XR market is worth approximately $32 billion in 2026, covering VR headsets, AR glasses, smart glasses, and their associated software and services.

This is not a random guess, if you want to know how we have come up with this estimate, you can read our XR market size analysis here.

To put this in perspective, the XR market is roughly the same size as the global bicycle market ($32 billion) or the global pet food market ($35 billion), but smaller than the video game console market ($55 billion).

The XR market remains in early growth stages with a maturity score of 35/100, is highly concentrated with Meta controlling 74.6% of headset shipments, and shows very little fragmentation as the top five vendors control 91.5% of the market.

How fast will the XR market grow in the future?

We project the XR market will grow at approximately 32% annually from 2026 through 2036, driven by accelerating enterprise adoption and the emergence of smart glasses as a mainstream category.

At this growth rate, the XR market should reach approximately $97 billion by 2030 and could hit $513 billion by 2036 in a realistic scenario.

For comparison, the smartphone market grew at roughly 25% annually during its 2007 to 2015 explosion phase, so our 32% projection for XR assumes similar mainstream crossover dynamics are beginning now.

What does current funding activity look like in the XR market?

Our team, who continually updates our XR market pitch deck, is keeping a close eye on the market and tracking key signals.

One of those signals is fundraising activity across startups. Each month, we refresh this page with a list of startups of the XR market that have raised funding, and we also publish a quarterly analysis here.

Is funding momentum accelerating or cooling in the XR market these days?

Q4 2025 saw just 1 deal totaling $250 million compared to Q3 2025's 2 deals totaling $29.8 million, a 739% jump in capital raised but entirely due to Sesame's massive Series B for AI smart glasses.

Compared to Q4 2024 (1 deal, $60 million from Xreal), Q4 2025 raised 317% more capital, showing that investors are still willing to write very large checks for the right XR opportunity.

The average deal size in Q4 2025 was $250 million versus $14.9 million in Q3 2025 and $60 million in Q4 2024, but this is misleading since Sesame was the only deal of the quarter. There were zero small deals (under $2 million) and one mega-deal (above $50 million) in Q4 2025.

Which categories and business models are attracting capital in the XR market?

These categories and business models of the XR market are receiving important fundraising currently:

• Hardware (headsets and glasses) raised $329.4 million across 4 deals over the past 5 quarters, with Sesame ($250M), Xreal ($60M), Pimax ($13.6M), and Varjo ($5.8M) leading the pack.
• Enterprise XR software and training raised $139.4 million across 4 deals, including Safe Dynamics ($100M), Loft Dynamics ($24M), frontline.io ($10M), and VRAI ($5.4M).
• XR content and location-based entertainment raised just $5.3 million from Rival ($4.2M) and DreamPark ($1.1M), showing investors acknowledge the content gap but are not yet writing big checks for consumer XR experiences.

Hardware capturing 69% of all XR funding confirms that investors believe the device layer is still the key control point, whether it is AR glasses or VR headsets.

Who's writing the most checks in the XR market?

These investors are being very active when it comes to fundraising in the XR market:

• Spark Capital and Sequoia Capital co-led Sesame's $250 million Series B, signaling that top-tier Silicon Valley firms see AI-powered smart glasses as a major opportunity.
• GEM Global Yield LLC SCS provided a $100 million investment facility to Safe Dynamics, helping the VR training company prepare for a potential public listing.
• FII Institute led Loft Dynamics' $24 million Series B for VR helicopter flight training, reflecting growing interest in simulation as a serious aviation category.
• FIT Ventures led frontline.io's $10 million Series A for industrial XR training, while Beringea led VRAI's $5.4 million Series A for defense VR simulation.

Interestingly, no investor appeared in more than one XR deal during this period, suggesting the market lacks a dominant repeat backer willing to double down across multiple companies.

Any big acquisitions or IPOs in the last three months in the XR market?

These are the big acquisitions and IPOs that happened recently in the XR market:

• Netflix acquired Ready Player Me, the avatar platform used across 25,000+ games, to power cross-game avatars for its gaming push. The service will shut down January 31, 2026.
• Meta acquired Limitless, the $99 AI pendant startup that raised $33M from a16z and Sam Altman, to bolster its Ray-Ban and Oakley smart glasses with always-on AI capture.
• XRHealth acquired Innerworld (120,000+ users) to dominate therapeutic VR, adding "Cognitive Behavioral Immersion" to its growing portfolio after previous acquisitions of RealizedCare and NeuroReality.

These acquisitions show well-capitalized companies building moats through platform breadth, with Netflix, Meta, and XRHealth all using M&A to fill gaps in their XR strategies rather than building from scratch.

How are companies in the XR market performing overall?

We are watching this market everyday, because we need to constantly update our pitch deck. Here is a couple of things we have noticed.

Are there any standout success metrics or financial results in the XR market?

These are some standout success metrics from Q4 2025 in the XR market:

• Ray-Ban Meta smart glasses sold 2 million units since October 2023, with sales tripling in Q2 2025, making it the only XR hardware category achieving mainstream velocity.
• Toyota saved $1.5 million annually using AI-adaptive VR training from Lenovo and VR Vision, while training over 10,000 employees with measurable performance improvements.
• Meta captured 60.6% of the combined AR/VR and smart glasses market in Q2 2025, with IDC forecasting 43.1 million units shipped by 2029 at 31.8% compound annual growth.

The contrast between smart glasses growth (247%) and VR headset decline (43%) shows the XR market is bifurcating, with lightweight wearables winning consumer attention while bulky headsets struggle.

Have there been any major partnerships in the XR market?

These are the major partnerships that happened in Q4 2025 in the XR market:

• Google extended its Magic Leap partnership for 3 years for Android XR glasses development, combining Magic Leap's waveguide optics with Google's Raxium microLED engine.
• Google announced XREAL as lead Android XR hardware partner, with XREAL's Project Aura among the first AR glasses running Android XR featuring 70-degree field of view.
• StretchSense and SkillsVR partnered for immersive training gloves, integrating precision hand-tracking and haptics as a plug-and-play module for enterprise VR training.
• Fundamental XR and Elsevier launched a mixed reality innovation program to help executives evaluate intelligent wearables through hands-on proof-of-concept trials.
• Vuzix and BUNDLAR partnered for no-code enterprise XR content, enabling companies to create and manage AR training without developers, reducing training time by up to 40%.

Google's dual partnerships with Magic Leap and XREAL show Android XR is building a diverse hardware ecosystem, positioning it as a credible alternative to Meta's closed approach.

Have there been any notable technology or infrastructure breakthroughs in the XR market?

These are the notable technology breakthroughs from Q4 2025 in the XR market:

• Cineon.Ai achieved the first UK Civil Aviation Authority approved VR pilot training system with eye tracking, establishing a precedent that could accelerate VR adoption across regulated industries.
• ByteDance revealed a custom display chip for Pico with 4,000 PPI microOLED, signaling vertical integration similar to Apple as they pivot from Meta competition to premium Vision Pro competition.
• Cisco invested in World Labs, the spatial AI unicorn from Dr. Fei-Fei Li that creates navigable 3D worlds from text and images, solving the critical XR content creation bottleneck.

Regulatory approval and custom chip development are both signs of XR market maturation, with aviation training approval opening doors for healthcare and other regulated industries.

Have any companies restructured or shifted pricing or business model in the XR market?

These are the major restructuring moves from Q4 2025 in the XR market:

• Meta slashed Reality Labs budget by 30%, targeting Horizon Worlds and Quest VR after $70 billion in cumulative losses since 2021. Layoffs begin January 2026 with resources shifting to AI glasses.
• Cloudhead Games announced 70% layoffs despite creating the acclaimed Pistol Whip, citing "VR's nascent challenges including lack of platform funding" after 14 years in business.
• Meta laid off 600 employees in its AI division, affecting FAIR and AI product teams while sparing TBD Labs (Superintelligence Labs), signaling a pivot toward ambitious AI projects for XR.
• Meta paused its third-party Horizon OS headset program, canceling planned devices from Asus and Lenovo to focus on first-party hardware, effectively abandoning its "Android-like" open VR ecosystem strategy.

Meta's restructuring moves tell a clear story: the metaverse bet is over, and the company is pivoting aggressively toward AI-powered smart glasses where Ray-Ban Meta has already proven consumer demand.

Are there any other notable wins or successes in the XR market?

These are other notable wins from Q4 2025 in the XR market:

• The FTC lost its landmark antitrust case against Meta, with the court ruling that TikTok and YouTube compete in the same market, preserving Meta's ability to leverage its social graph for XR applications.
• Microsoft Mixed Reality Link launched for Quest productivity, enabling Quest 3 users to access Windows 11 with 12 simultaneous windows, creating a powerful Vision Pro alternative at a fraction of the price.
• UnitedXR Europe became the continent's largest XR industry event with 167 exhibitors including BMW and Telefonica customers, showing enterprise XR is moving from demos to operational deployments.

The FTC ruling removes regulatory uncertainty for Meta's XR strategy, while Microsoft partnering with Quest hardware instead of competing shows even rivals see cooperation as the path forward against Apple.

What is the overall sentiment in the XR market right now?

Are there any notable recent opinion pieces, thought leadership about the XR market?

No, we don't think there have been any notable opinion pieces worth mentioning here during Q4 2025 in the XR market. The quarter's news was dominated by product launches and corporate restructuring rather than thought leadership.

Are there any interesting and recent market research reports about the XR market?

These are the notable market research reports from Q4 2025 in the XR market:

• IDC forecasted VR headset market to decline 42.8% in 2025, with Apple Vision Pro shipping only 45,000 units (down from 390,000 in 2024) and Meta shipping 1.7 million Quest units (down 16% year-over-year).
• IDC reported smart glasses shipments surged 247.5%, with the combined AR/VR and smart glasses market growing 39.2% to 14.3 million units in 2025 and forecasted to reach 43.1 million units by 2029.

These IDC reports paint a clear picture: VR headsets are struggling while smart glasses are thriving, validating the industry's pivot toward lightweight AI-powered eyewear.

Have there been any regulatory changes, policy updates, or new compliance requirements in the XR market?

These are the regulatory developments from Q4 2025 in the XR market:

• The UK Civil Aviation Authority approved the first VR pilot training system from Cineon.Ai with eye tracking, setting a precedent for regulatory acceptance of immersive training in aviation and potentially other regulated industries.

This CAA approval is significant because regulatory acceptance has been a major barrier for VR adoption in high-stakes training environments like healthcare, nuclear, and defense.

Who is the author of this content?

NEW MARKET PITCH TEAM

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