Nearly a decade ago, gaming console suppliers and game developers tried, but largely failed, to pivot to virtual reality. The Xbox found success with the Kinect sensor, but Microsoft (NASDAQ:MSFT) discontinued it in the fall of 2017. Nintendo’s (OTCMKTS:NTDOY) Wii was more successful but failed to permanently alter the gaming landscape. The company has since found that people are eager to embrace augmented reality instead. Through its partnership with Niantic, Nintendo released the multi-billion dollar hit Pokémon Go in July 2016. In many ways, the game paved the way for current metaverse trends. Metaverse stocks should fare well in 2022.
After half a decade since Nintendo’s Pokémon blockbuster, the game is still a hit. It had almost 830,000 daily active users at the start of this year in the U.S on one platform alone.
The tech industry has taken notice of this continued success. Social networking giant Meta (NASDAQ:FB) (formerly Facebook) wants to pivot towards VR and the metaverse. The company believes that its apps will be critical to the metaverse. The firm bought Oculus in 2014 for a mere $2 billion. Right now, Meta’s revenue depends largely on advertising. As TikTok erodes its Instagram platform, the firm must double down on the metaverse.
Including Meta, here are seven metaverse stocks that investors should consider:
- Apple (NASDAQ:AAPL)
- Meta Platforms
- Intel (NASDAQ:INTC)
- Nvidia (NASDAQ:NVDA)
- Roblox (NYSE:RBLX)
- Tencent Holdings (OTCMKTS:TCEHY)
- Unity Software (NYSE:U)
Quality and valuation scores for metaverse stocks
Chart courtesy of Stock Rover
Notice the stocks have a fair value score, according to Stock Rover. Investors get quality stocks with a favorable return on investment in exchange for paying a premium.
Metaverse Stocks to Buy: Apple (AAPL)
Skeptical investors may think Apple’s iPhone refresh cycle does not signal its play in the augmented reality space. Apple has yet to officially enter the space. However, customers get access to Unity, Roblox and Tencent games from the Apple App Store. Its indirect exposure to the metaverse will buy it some time.
Apple may assess the potential of VR first before it invests billions in acquisitions to catch up. It could buy a gaming software platform or invest in companies that make VR hardware. Investors may speculate that Apple will buy into smart eyewear. It already has the Apple Watch and Beats headphones. The eyewear market would complement those two businesses.
At its current stock price, AAPL stock does not trade at a favorable valuation. As mentioned above, the value score is 25/100. This is below that of Meta and Unity stock. In the current quarter, investors are holding the stock to bet on strong holiday sales. Expect strong growth in Apple Watch and Bluetooth earphone sales. Naturally, Apple will exceed expectations on iPhone sales despite supply constraints.
Meta Platforms (FB)
As the first firm to go “all in” on investing billions in the metaverse in the next decade, Meta will create an impenetrable moat. The company proposed buying the VR fitness app Supernatural. Still, it needs to answer to the U.S. Federal Trade Commission’s antitrust probe.
The FTC did not indicate why it is scrutinizing the deal. Meta has a big market share in VR from strong Quest 2 headset sales. The FTC needs to check that Meta does not dominate the VR gaming studio market. Gaming conglomerates like Microsoft or Sony (NYSE:SONY) have made similar acquisitions. This suggests that the FTC will approve the Supernatural deal.
On Dec. 9, Meta opened its VR space, Horizon Worlds, for free. Now that it is out of beta, people may try out its 3-on-3 laser tag game called Arena Clash. Furthermore, game developers may access new creator tools. Investors should treat Meta’s Horizon Worlds opening as a positive catalyst. By releasing the environment first, it will grab market share.
Metaverse Stocks to Buy: Intel (INTC)
Looked at as a slow-moving gorilla of computer chips, Intel is pivoting into the gaming space. The firm is losing desktop and server market share to Advanced Micro Devices (NASDAQ:AMD). Yet Intel also recognizes that customers are under-served in the discrete graphics chip market.
Thanks to cryptocurrency mining and a chip shortage, GPU prices are through the roof. To profit from this sector, Intel is introducing its Arc graphics solutions. It is coming in Q1 2022. The GPU is still in the validation phase with partners. They are providing feedback to Intel. After it fixes any bugs and addresses partner concerns, consumers will be able buy Intel’s GPU.
The graphics industry suffers from supply problems. Intel has the flexibility in building chips from its fabs and Taiwan Semiconductor (NYSE:TSM). This could put an end to the high AMD and Nvidia graphics card prices. Markets are underestimating the impact Intel’s entrance will have on the AMD-Nvidia duopoly.
INTC stock has a favorable value score. Plus, each share pays a $1.39 dividend annually, currently a 2.7% dividend.
Nvidia (NVDA)
Computers need powerful graphics chips. And since Nvidia’s card is out of stock or in limited supplies at most retailers, the company will enjoy healthy profit margins. Nvidia also has an edge over AMD in that it addresses driver software issues faster.
Intel is not yet an imminent threat with the Arc chip release. Besides, Intel will address the needs of the budget and mainstream market. Nvidia will continue to cater to gamers who demand high-end VR performance.
VR and AR will require mobile edge computing and cloud gaming solutions. Nvidia’s Grid vGaming supports up to 160 PC games running concurrently. Should people require higher concurrency ratios, Nvidia’s RTX server will easily meet such power demands. In the next few years, the company will enjoy strong revenue from hardware sales. Subscription revenue from its cloud gaming will grow.
Investors worried about NVDA stock valuations may wait for a pullback before starting a position. Nasdaq’s performance weakened in December. This hurt Nvidia’s stock, but not enough to lower its valuations.
Metaverse Stocks to Buy: Roblox (RBLX)
Roblox is a social gaming platform benefiting from strong user growth. In November, the company posted daily active users growing by 35% year-over-year to 49.4 million. Hours engaged also rose by 32% YoY to 3.6 billion.
The lower risks of the omicron variant should limit the lockdown measures. Roblox’s strong user growth despite fewer people staying at home is bullish. As the metaverse unfolds in 2022, Roblox has plenty of work ahead. It needs to offer far better quality graphics in games. Also, it depends too much on young children for sustained engagement. If parents decide to restrict their children’s time spent on the platform, Roblox risks reporting lower bookings growth.
Facebook’s Oculus Quest allows users to play Roblox games. This suggests that VR is certainly in the gaming and metaverse future. At current levels, RBLX stock is priced to perfection. Like the stocks mentioned in this article, it is vulnerable to a valuation correction. Readers cannot time the market and guess when to best buy the stock. What is certain is Roblox’s growth rate is not slowing.
Tencent Holdings (TCEHY)
Before considering TCEHY stock, investors should beware that stocks listed in China face regulatory risks. Fortunately, China said that Tencent may publish app updates again. The government previously suspended it. It had previously been found that a few of Tencent’s apps infringed on users’ rights and interests.
Tencent is exploring the prospects of the metaverse. In its Q3 2021 conference call, Tencent President Martin Lau said the metaverse is a vague concept. Tencent has the technology and know-how building blocks to develop products that maximize the metaverse opportunity. For example, the company has experience developing games and social network experiences.
Tencent is in a good position to align its social network, games, AI capabilities and hardware server architecture to offer the metaverse to users. It is a dominant player in Asia. Investors will benefit from exposure to strong growth in this geographical area.
Tencent has plenty of resources and cash to invest in the metaverse. This includes investing in research and developing, acquiring or partnering with firms.
Metaverse Stocks to Buy: Unity Software (U)
Investors who prefer Unity’s superior graphics over Roblox’s offering should consider U stock. In November, Unity bought Weta Digital’s VFX division for $1.625 billion. This will enhance Unity’s solutions.
Weta has a cloud-based workflow. Unity will get a suite of VFX tools along with 275 talented engineers from the deal. Weta has a long history of success in visual effects from hit movies. Unity will develop dozens of proprietary graphics and VFX tools in 2022. Investors should expect games made with the software firm’s tools to have even more impressive graphics.
Weta VFX tools will extend beyond the film and gaming industry. When Unity develops it for the cloud, it will play a big part in content creation in the metaverse. Until then, investors will benefit from the tool used in other industries. This includes the automotive, e-commerce and architecture segments.
Unity is betting that it will lead in the metaverse through 3D content creation in AR and VR. The industry needs to move quickly in this space. Unity is empowering creators with its tools. In doing so, it is strategically positioned to capture a big portion of the metaverse market share.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
