Metaverse stocks are taking flight now. The metaverse, for those unfamiliar, is the concept of an always present virtual reality where users can digitally meet to play games, communicate, and collaborate on work projects. With the pandemic, more limits appeared around meeting people in person, helping boost the demand for digital substitutes. The latest Covid-19 variant is likely to only add more fuel to this trend.
An exchange-traded-fund (ETF), the Roundhill Ball Metaverse ETF (NYSEARCA:META) debuted this summer at $15 per share. It sat around that mark with little interest for the first couple of months.
All that just changed thanks to Meta Platforms (NASDAQ:FB); the company until recently known as Facebook. In its latest quarterly earnings report, founder and CEO Mark Zuckerberg announced a bold new vision for the company. The social networking company is now becoming a dominant player in developing the metaverse and will invest around $10 billion annually in pursuing this new ecosystem.
Not surprisingly, this caused a gold rush mentality to hit in the technology space. Other metaverse stocks have skyrocketed on the news. Meanwhile, the Meta ETF’s stock price jumped 20% in a couple of weeks around the news from Zuckerberg. These are seven of the top metaverse stocks that should profit as the new technology starts to become a reality:
- Meta Platforms
- Unity Software (NYSE:U)
- Roblox (NYSE:RBLX)
- Microsoft (NASDAQ:MSFT)
- Nvidia (NASDAQ:NVDA)
- Matterport (NASDAQ:MTTR)
- Immersion (NASDAQ:IMMR)
Metaverse Stocks to Buy: Meta Platforms (FB)
Since Zuckerberg launched the metaverse concept into the mainstream, any discussion of investments in the sector has to start with FB stock. Going forward, Facebook won’t just be a social media company. Rather, it will focus on creating a digital expansion of the physical world through tools such as augmented and virtual reality.
Zuckerberg has spoken in the past about having an always-on internet through some new platform such as smart glasses. If successful, this would give Meta a huge opportunity to gain market share from phones, putting Meta on a whole new growth trajectory. It all sounds promising. However, investors haven’t been too keen on the idea so far.
Ironically, FB stock has benefitted much less from the metaverse push than most of the other names on this list. That’s presumably because investors realize that Meta is already a gigantic company. It generated $112 billion in revenues and $40 billion of net income over the past 12 months.
The metaverse, incrementally, isn’t going to be a huge driver for results over the next few years. Maybe in 2030 or 2035, Facebook’s virtual reality operations become the main profit driver for the company. But it’s not a 2022 or 2023 story. And for that, FB stock will show more muted gains from this trend than others on the list.
Unity Software (U)
For an example of stocks benefiting more from the metaverse, just look at Unity. Zuckerberg reportedly tried to acquire Unity a few years ago, realizing that it would be a trophy asset to own in terms of assembling the metaverse.
Unity’s primary asset is a graphics engine that allows developers to create digital art across a wide variety of platforms. A video game made in the Unity engine, for example, can easily run on consoles, computers, mobile phones and even virtual reality headsets. Zuckerberg thought about buying Unity so that Facebook could use it as the base system for creating an appealing virtual reality experience.
Since that transaction didn’t come to fruition, Unity remains a standalone company. In addition to its main game business, Unity is also exploring other cool features with its 3D graphics. These include computer-aided architecture, video production and e-commerce. The e-commerce angle has a nice metaverse tie-in, as users can model clothing and other accessories in a digital virtual reality storeroom and then order them, with Unity getting a cut of the sale.
Unity is one of the most exciting metaverse stocks out there. However, do keep in mind shares just ran up from $100 to $200 in the space of six months, with the last 50% of that move coming in just a couple of weeks. I had owned U stock but sold it following that tremendous run. That said, I plan to get back into Unity once this current correction passes. Fundamentals for this one are tremendous, but traders are seemingly locking in some profits ahead of year-end.
Metaverse Stocks to Buy: Roblox (RBLX)
Roblox is one of the most fully-developed metaverse concepts out there. The company already offers a fully-operational digital world where players can engage with countless custom and user-generated games.
It’s easy to knock Roblox as just another virtual world a la Second Life. The concept isn’t new. However, what has changed is available technology. In the past, virtual worlds were far less immersive since users generally had to be at a powerful desktop computer to take part. Now, though, players can hop on Roblox from phones, tablets and just about anywhere.
Roblox also has minimalist graphics, meaning that it is widely accessible across a ton of different hardware. It should scale easily toward virtual reality. Already, we’re seeing promising signs. Nike (NYSE:NKE), for example, is launching a metaverse store on the Roblox platform. Given the high portion of the Roblox user base that are teenagers, Nike could find a perfect vehicle here for marketing to young athletes, making plenty of money for both it and Roblox.
It might seem unbelievable at first glance. But Microsoft, yes, the Office company, is planning its metaverse foray as well. The company wants to offer tools so the workers can collaborate with each other in a virtual augmented reality setting.
Does this seem like a good idea? I’m not sold on it. It’s hard to imagine that adding virtual reality to mundane tasks such as spreadsheets or Powerpoint is going to really change much. That said, it’s vital that Microsoft try to control the next platform, whatever that may be. An investment in the metaverse makes sense as a defensive measure if nothing else. And there are some areas, such as adding more fun aspects to Microsoft Teams that might be quite useful at the margins.
On another note, Microsoft could be a big winner in the Metaverse via its gaming division. I’m skeptical on virtual reality for office applications. However, there’s absolutely a wide lane to make something happen with Xbox and Microsoft’s own proprietary video game properties.
Metaverse Stocks to Buy: Nvidia (NVDA)
To make the most out of the metaverse, participants will need better gaming systems. While some lower-end games like Roblox may run well on existing technology, much of what’s being imagined now will need seriously powerful graphics cards. This creates one big opportunity for Nvidia. And there’s another in play, as well.
Nvidia has most recently profited from efforts elsewhere, such as its cards for cryptocurrency mining and its data center GPUs. However, Nvidia has a huge range of investments in next-generation technology. From things like autonomous driving to artificial intelligence (AI), the semiconductor company has envisioned a wide range of futuristic products.
With that in mind, when Nvidia puts its efforts toward something, you need to take it seriously. In this case, we’re talking about the omniverse, which is Nvidia’s imagining of the metaverse.
This one isn’t as focused on fun, but rather efficiency. Nvidia believes that companies can save billions by simulating processes over and over in virtual reality to optimize their systems. It’s safer to experiment in a digitally-created lifelike representation of a factory than an actual one, after all. In an investing climate increasingly shaped by environmental, social and governance (ESG) concerns, an Nvidia AI and virtual reality platform that reduces pollution and waste could be a winner.
Matterport is a fascinating entry into the augmented reality sector. It offers users what it deems a spatial reality product. Specifically, the company builds digital indexes of buildings and other physical locations.
What does this achieve? By having a perfect digital model of a building, Matterport can help create a perfect metaverse replica of the area for virtual worlds. Vacationers can participate in a 360 virtual walking tour of a given hotel or tourist attraction before booking their trip. Companies can check out prospective office space remotely. Retail stores can build a digital model of their location and try new set-ups for their establishment without disrupting existing operations. And the list goes on.
Matterport is still in the early innings of figuring out its long-term business model. The company generates around $100 million annually in revenues and doesn’t yet turn a profit. So this one is relatively speculative. The story makes perfect sense though, especially as companies like Facebook and Microsoft start spending serious bucks to make the metaverse a reality. There’s a decent chance that Matterport will find a way to capture a big piece of the metaverse pie.
Metaverse Stocks to Buy: Immersion (IMMR)
Rounding out the list, we have another company building the tools that will help create the metaverse experience. Specifically, it’s Immersion, which creates haptic technologies. In English, that means that it has patents for ways to create devices that respond to a user’s touch.
This has taken off most quickly in video game controllers. Instead of just pushing a button, now controllers can determine how aggressively a player is gesturing and make the game respond accordingly. This unlocks a wide variety of more specialized gaming functions. It’s not hard to see how more precise user controls that respond to touch and movement will help power the metaverse.
Immersion’s business model works by licensing out its patents to developers. As of this writing, Immersion has more than 150 licensed customers, and is found in more than 3 billion total devices that incorporate Immersion technology in one way or another. It’s not just strictly video games, either. Immersion is starting to form partnerships in the automobile space, among others. Surprisingly, IMMR stock is also cheap; it currently sells for less than 10x earnings.
On the date of publication, Ian Bezek held a LONG position in FB stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.