There’s a lot of excitement over the metaverse right now. And I think it’s justified. The mobile market has matured and everyone has some sort of handheld device nowadays. But the augmented reality/virtual reality (AR/VR) market is in its relative infancy. As an investor, this is what excites me the most. Spotting the next trend and looking for the best companies to invest in. This brings me to my search for metaverse stocks that could really explode in the years ahead.
Two of my top picks (outside of Big Tech)
Before I get started, it’s worth mentioning Meta Platforms (previously Facebook). Traditionally part of the US ‘Big Tech’ group of companies, it catapulted the term ‘metaverse’ into the mainstream last year when it rebranded to Meta. The company will now focus considerable resources on its own metaverse, while segregating its family of social media apps into a separate division. I see a lot of potential in Meta and its plans for the metaverse. But here, I want to explore smaller stocks that might not be as well known.
The first company is Unity Software which provides a platform for users to create 3D content across AR/VR and numerous other devices. For example, Unity’s platform was used by Disney to create a short film in VR. It also has a leading game-engine software solution, so I see it really expanding in this vertical too. Analysts are expecting at least 30% revenue growth from Unity in both 2022 and 2023.
I also view Roblox as an exciting metaverse stock. It’s another platform provider for content creators, only here focusing primarily on games, but also virtual events. Another big brand, Nike, partnered with Roblox to create Nikeland, a 3D theme park where people can play and kit out digital versions of themselves in Nike-branded goods. There’s huge potential for other companies to leverage Roblox’s expertise to bring their brands into the metaverse in my view.
I do have to keep in mind that both of these companies are still loss-making, so it does heighten the risk of the investments.
Picks and shovels metaverse stocks
Investing in single stocks is always going to be risky. The companies have to keep executing for the revenues to keep rolling in. With the metaverse, there’s also going to be intense competition as many businesses attempt to muscle in on this growing industry.
This brings me to a favourite quote of mine from Peter Lynch, the famous fund manager. He describes ‘picks and shovels’ businesses in the following way: “During the gold rush, most would-be miners lost money, but people who sold them picks, shovels, tents and blue-jeans (Levi Strauss) made a nice profit.”
So I also think it’s worth mentioning companies like Nvidia, and Taiwan Semiconductor. These businesses either design or manufacture leading computer chips that will be vital in any version of the metaverse. I view them as the ‘picks and shovels’ option to gain exposure to the metaverse in my portfolio.
With all of these investments, I’m going to take a long-term view. Any new industry takes time to develop after all. But over 2022 and beyond, I think these stocks could really explode with the growing metaverse so I’d buy them in my portfolio.
