Sail Into the Metaverse With These Stocks

The metaverse is taking shape. These are the names you want to own.

The use of metaverse space could one day expand to business, education, and retail applications.  For now, the metaverse currently exists in a limited form through video games like second life and platforms like VRChat, but ambitions are enormous.   The use of metaverse space could one day expand to business, education, and retail applications. 

According to Bank of America, the global metaverse market could grow to $800 billion by 2025.  Numerous companies are vying for a spot at the head of the pack when it comes to pioneering the metaverse.  Household names like Visa and Nike are pouring money into metaverse-related research and development.

In this watchlist, our team looks at three companies that seem well-positioned to lead the way into this new, virtual world.  

---

---

The ticker that tops our list of stocks that will likely grow along with the metaverse is Facebook (FB), soon to be known as Meta Platforms Inc. (MVRS), or just Meta.  The name change announcement came after Facebook CEO Mark Zuckerberg proclaimed in July that the company would “effectively transition from people seeing us as primarily being a social media company to being a metaverse company” and will go into effect in December. 

A host of companies seek to make the metaverse happen, but FB was arguably first on the scene and holds a leadership position in hardware with its Oculus app and VR headset.  Earlier this year, FB launched a public version of a new Oculus app called Horizon Workrooms. Using the firm’s VR headsets, users are able to participate in meetings via avatars. They can see their computer screens, keyboards and even participate on virtual whiteboards. 

“In the future, working together will be one of the main ways people use the metaverse,” Zuckerberg wrote in a recent blog post.  And Facebook wants to be one of the first to bring such tools to the market.  Given the recent surge in work-from-home arrangements due to COVID-19, this certainly could be a significant win in the near term.

The metaverse is still a ways off, but for investors who want to get their foot in the door now, FB is a logical choice.  There’s no denying the firm’s cash flow generation or profitability, which makes FB an attractive play on the metaverse, even for conservative investors. Given the company’s solid foundation and first-mover status, we’ll be watching FB or MVRS stock as the metaverse takes shape.  

The 46 analysts offering 12-month price forecasts for Meta Platforms Inc. have a median target of $407.50, representing a 20% increase from the last price.  The consensus among 51 analysts is to Buy FB stock.  Among them, 38 rate the stock a Buy, 11 say to Hold it, and 2 give it a Sell rating. 

---

---

The metaverse is still in its embryonic stages. Still, an increasing number of market participants are jumping in on the companies they believe will lead the way into this fantastic new iteration of the internet.  One company that is looking to pioneer the space is Nvidia (NVDA).  The chipmaker has been increasing its involvement with software and services, and in December of 2020, it initiated beta testing of Omniverse Enterprise.  According to the company, Omniverse is a simulation and collaboration platform that “serves as the connective tissue for physically accurate 3D virtual worlds.”  

The critical technology powering Omniverse is Nucleus – a database engine that allows client applications to share and modify 3D assets and scene descriptions.  Nucleus is based on Pixar’s open Universal Scene Description technology, which provides a common language for defining digital assets.

Earlier this month, the chip maker announced a major expansion of its Omniverse Enterprise platform at its virtual GPU Technology Conference or GTC.  Nvidia said it is launching Omniverse Avatar, which generates interactive AI avatars based on its technologies in speech, computer vision, natural language understanding, recommendation engines, and simulation. Also, the company is launching Omniverse Replicator, an engine that generates the vast amounts of data needed to train the deep neural networks that constitute AI.

Nvidia touched on the upcoming general availability of Omniverse in April 2021.  Investors will be looking out for the official launch of the platform.  Omniverse Enterprise subscription starts at $9,000 per year for a workgroup of two creators, 10 reviewers, and 4 Nucleus subscriptions.

Wells Fargo analyst Aaron Rakers raised the firm’s price target on Nvidia to $320 from $245 while keeping an Overweight rating on the shares. The analyst sees Omniverse as a key enabler/platform for the development of the metaverse across a wide range of vertical apps, including industrial, manufacturing, design and engineering, autonomous vehicles/robotics, and more.  “Nvidia Omniverse Enterprise represents a significant platform expansion strategy for the company, which also entails a deepening recurring software story,” Rakers said, adding that the Omniverse Enterprise also “presents a halo effect to the company’s product portfolio.”

Nvidia is outperforming its tech peers by a landslide.  NVDA’s share price is up 108% over the past 6 months, while the Nasdaq Composite has risen just 16% over the same period.  With a P/E ratio of 109, there’s no denying that the stock is currently trading at a premium.  After gaining nearly 40% in the past month alone, some analysts say a cool down is in order.  This is undoubtedly one to keep on your radar for those looking to get in on the metaverse.  

The metaverse could revolutionize the way professionals interact, meet and collaborate online and Microsoft (MSFT) is looking to be the early leader in the professional metaverse.  Microsoft CEO Satya Nadella said in an October interview with Harvard Business Review, “ I think this entire idea of metaverse is fundamentally this: Increasingly, as we embed computing in the real world, we can now embed the real world in computing.”  

In our new, work-from-home environment, Microsoft Teams and its 365 software suite has become the go-to productivity platform in our new work-from-home environment.  The company is using its leadership position to its advantage.  At a recent event, Microsoft unveiled a new suite of metaverse and virtual products designed to integrate into its popular suite of tools, including Microsoft Dynamics 365 Connected Spaces, which creates immersive environments for participants.  Companies will be able to recreate and visit their factory floors and retail stores during virtual meetings to boost collaborations.  Users will also be able to create their own avatars for video meetings and collaborate in virtual workrooms.  Microsoft’s HoloLens, which are mixed reality smart glasses, and Xbox gaming consoles, may also play essential roles in the metaverse user interface. 

 34 of the 38 analysts covering the stock say to Buy MSFT.  The other 4 say to Hold.  There are no Sell ratings.  A median price target of $364 represents an 8% increase from the last price.  

---