Nvidia vs Roblox: which top metaverse stock is the better buy?

Suraj Radhakrishnan looks at the two top metaverse stocks today and explains why he thinks one is a clear winner for his long-term portfolio.

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The metaverse expansion is underway and the internet’s future is exciting. I think picking a top metaverse share for my portfolio is a no-brainer right now. And with major brands already investing heavily in the project, two names are now congruent with the ‘meta.’ Roblox (NYSE:RBLX) and Nvidia (NASDAQ: NVDA) enjoyed a tremendous 2021, cementing themselves as the top metaverse stocks. Both operate on opposite ends of the metaverse and here I look at what makes either stock a good option for my portfolio.

Powering the meta

Nvidia is a semiconductor superpower and is an established graphics processing unit (GPU) brand in the gaming world. It is now the leading metaverse hardware developer with an 83% market share. Investors finally caught up to the potential of the company and the share price rose 125% in 2021, making it one of the top global performers last year. But do I think this rise is justified? The answer is a resounding yes.

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Given the expansion of virtual worlds, the computing and graphic capabilities of the average computer or console has grown rapidly in the last decade. This demand caused Nvidia’s revenue to jump over 100% in just three years. Its premium chipsets have grown in both capacity and price. And the firm is making the transition to offering a software framework via the Nvidia Omniverse. The platform will allow creators to seamlessly implement graphic upgrades to existing virtual worlds.

But I think replicating this run in 2022 is very unlikely. At $276, the Nvidia share price is now trading with a mindboggling price-to-earnings ratio of 85 times. Analyst’s estimates suggest an 18%-20% growth in revenue this year, which is far from its 2021 revenue growth of 52%. Also, given the expenditure that comes with expansion, investors are taking profits right now and its share price has been falling since mid-December.

But I am not looking for explosive gains but the best stock to invest in the metaverse. And despite the huge overvaluation, I think Nvidia will continue its market reign as a computing powerhouse and could offer steady growth. Although I missed its incredible run last year, Nvidia still remains the top metaverse stock for my portfolio in 2022.

Meta gaming

I cannot overlook Roblox and its role in shaping the early days of the metaverse. After its listing in July 2021 at $45, the Roblox share price shot up to $135 in November. But it has fallen steadily since and is currently trading at $88. And I think Roblox’s value was grossly inflated given the pandemic gaming boom. 

Roblox’s surge in daily users last year means the platform now has over 50m unique games and is child-friendly. Both strong positives. But can it front the gaming revolution on the metaverse? I do not think so. The gaming world is so fragmented and full of diverse sects. I think there is so much scope for expansion and Roblox is just one piece of the puzzle.

It does not help that Roblox is still loss-making. Losses in 2021 stood at $348m and it could be years before the gaming company starts making money. It is too early to call how metaverse gaming will develop. The hardware, however, is a different question. Processors are crucial to creating this virtual world. This is why I think Nvidia is the top metaverse stock for me to buy today.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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