Metaverse stocks grabbed headlines in 2021, but interest waned quickly, leading many to write them off as relics of the zero-interest rate era. While there’s some truth to that perspective, the situation is more complex. Similar to other rapidly emerging sectors like cannabis and space exploration, metaverse stocks initially soared on hype but soon underwent a reality check as the market recognized that their ambitious goals were still a long way off. Needless to say, buying a metaverse stock is a pro play.
This realization triggered a sharp correction, with investors withdrawing and causing previously inflated values to drop dramatically. However, the metaverse still offers viable opportunities for those willing to conduct detailed research. Projections suggest that the sector could be valued at up to $13 trillion by 2030.
This scenario presents more than just a chance to weather the storm; it offers an opportunity to invest in stocks that have genuine long-term potential. Selecting companies that can sustain themselves until they fully mature could lead to substantial rewards once the metaverse gains traction again. Despite the current slump, investing in the future of metaverse technology holds the promise of significant returns for those who are patient and forward-thinking.
Meta Platforms (META)
Okay, so you saw this metaverse stock coming.
Meta Platforms (NASDAQ:META) frequently comes to mind when considering metaverse stocks to buy, and with good reason. The company’s extensive operational reach impacts many of us daily, driving a culture of growth and innovation. Despite a recent dip in share price due to management’s spending increase and a conservative sales forecast—offset by a 117% increase in quarterly net income—Meta’s stock is attractive for metaverse investors. The first quarter of 2024 saw impressive performance indicators for Meta, including increased daily active user rates, improved ad impressions, higher ad spending, and over $15 billion returned to shareholders. However, a decent price drop accompanied the apparent good news.
The short-term market jitters were largely due to heightened cost projections, which, in reality, reflect a strategic push. Meta’s record-high capital expenditures intend to boost its artificial intelligence capabilities, a move that CEO Zuckerberg believes will significantly expand Meta’s investment potential before these new products start generating substantial revenue.
While some might be skeptical of Zuckerberg’s continued metaverse emphasis, it’s essential to recognize the company’s consistent approach to pioneering long-term strategies that may take time to materialize. Considering Meta’s history, this temporary price dip offers a promising buying opportunity among S&P 500 stocks.
Roundhill Ball Metaverse ETF (METV)
For a stake in the wider sector, the Roundhill Ball Metaverse ETF (NYSEARCA:METV) offers instant access to 38 metaverse-related holdings for a 0.59% expense ratio. Top holdings in this ETF include metaverse stalwarts like Nintendo (OTCMKTS:NTDOY), Amazon (NASDAQ:AMZN), Meta, and Autodesk (NASDAQ:ADSK).
METV’s total holdings seem undervalued as a group, especially compared to the sector. The portfolio’s averages include a 22x price-to-earnings ratio against the industry’s 27x and a lower price-to-book and price-to-cash flow than the benchmark to boot. All three well-rounded indicators of undervaluation make the unique thematic ETF an ideal alternative to picking individual metaverse stocks.
Last year Roundhill had to divest its European metaverse ETF, saying that the company “decided to refocus our distribution efforts back to our home market in the US, where we believe there are currently numerous opportunities for innovation.” While concerning at first, more than six months later it seems as though METV itself is here to stay despite international metaverse weakness.
Unity Software (U)
Unity Software (NYSE:U) is a top pick among Cathie Wood’s favored metaverse stocks. Despite a 50% drop in share prices since January, her continued investment underscores her confidence. Wood has been consistently purchasing shares and has not sold any since December 2022. Unity is strategically positioned at the intersection of the metaverse, gaming, and Web3. All three pivotal sectors make it an attractive investment for those looking to diversify their digital technology portfolio.
A report from White Brook Capital underscores Unity’s unique value propositions, particularly its digital twin platform. This platform is distinct in its ability to replicate real-world objects, materials, and people within a Web3/metaverse context, distinguishing Unity in the marketplace. Moreover, unlike many metaverse initiatives, Unity maintains a positive cash flow through a robust advertising network. This capability to generate profit enhances Unity’s stability in the face of broader market fluctuations, supporting the company as metaverse investments begin to attract broader institutional interest.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
