Gene Munster Argues Many Investors 'Don't Fully Appreciate The Potential Of Virtual Reality'

Facebook Inc FB is more than 14 percent off of its 52-week high of $99.24, though shares are gaining nearly 4 percent in early Tuesday trading.

Piper Jaffray's Gene Munster reaffirmed the firm's bullish stance on the stock, reiterating the firm's $146 price target.

According to Munster, investors have not adequately priced in the upside from virtual reality, which Facebook will start selling via its Oculus Rift in Q1 2016.

Oculus Rift Outlook

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Munster believes that the potential in virtual reality is quite large – and took the opportunity to dispel some myths that he's been hearing while talking with investors. Notably, Munster said there were five myths:

1) virtual reality is the next 3D TV
2) VR will make you sick
3) there won't be enough content
4) VR is not social
5) converting existing games to VR is easy

Importantly, Munster said that all the evidence shows that "kids want to use VR and will grow up surrounded by virtual and augmented reality."

That means the very early stages of adoption have arrived. The first generation of the product will be for "tech enthusiasts," while it is not until the third and fourth generation that meaningful adoption will occur.

Munster said that Piper Jaffray expects Facebook to retail the Rift for $399 with controllers available for an additional $99. Next year, he noted that Facebook should sell 3 million units, adding $1.2 billion to 2016 revenues.

That said, Munster forecasted that the margins on the devices would be just 10 percent as the technology gets into the hands of more users.

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