Metaverse stocks are getting slammed! Here’s what’s on my shopping list

Jon Smith explains why metaverse stocks are getting hit hard at the moment, and which ones he might buy at the moment.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Most of the top metaverse stocks have a few similar characteristics. First, many are listed in the US. Second, many are classified as high-growth stocks. Unfortunately, this hasn’t been a great mix for January, with stock markets in the US falling lower due to concerns about the pace of interest rate hikes. Given the fact that high-growth stocks are most sensitive to changing sentiment, many have seen a major move lower. This does offer some good value in my opinion, so here are a few stocks that I might buy.

Identifying where to buy

Last month, I wrote about how I can get exposure to top metaverse stocks in different ways. In short, I can go direct and invest in stocks that are very dependent on the metaverse taking off. Alternatively, I can be less direct and look at the stocks that are involved in some way, but also have other lines of revenue. This makes them less dependent on the success of adoption of the metaverse. 

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When I consider the January sell-off, stocks that have more direct exposure have been hit the hardest. For example, I can compare Roblox with Sony. Roblox is a virtual game designer and software developer. In effect, it houses the virtual world that users can then go in and use. Over the past month, the share price is down 42%.

By comparison, Sony is a well-known conglomerate with a division in electronics hardware. It’s one of the leading producers of virtual reality headsets. Over the past month, the share price has fallen 19% (although it’s up over a year). From this comparison I can see that general negative risk sentiment has more heavily impacted the companies that are more reliant on the metaverse.

Long-term plays on metaverse stocks

Even though interest in the metaverse increased significantly in H2 last year, I still feel that it’ll take a few more years to fully get users on board. So I see the sector as a long-term play. In this regard, the high volatility is something that I’ll have to learn to deal with.

As we currently stand, my risk tolerance is high enough for me to want to buy direct metaverse stocks, such as Roblox. The company is trading at $57, below the $70 IPO price less than one year ago. I just can’t see how 42% of value has been wiped off the company in the past month, when Q3 results in November showed revenue up 102% year-on-year.

Aside from Roblox, Unity Software is another stock I’ve got on my shopping list. The company specialises in game development software. It has also recently bought Weta Digital, which created the special effects for Game of Thrones and Avatar. 

In terms of risks, volatility is one to be aware of. Such stocks can see extreme drawdowns in a short period of time. Another risk is that the metaverse is still in its early stages. Depending on the end destination, some of the metaverse stocks I buy might not have a role in this new world, rendering them potentially worthless.

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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Unity Software Inc. 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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