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The four themes – and stocks – driving growth in the Metaverse

23 January 2023

Gaming, socialising and working via the Metaverse will all be grow in popularity in the years to come.

By Pauline Llandric,

AXA Investment Managers

The Metaverse has evolved significantly in recent years and is more prevalent than ever when discussing the future of investible technology, its capabilities and opportunities.

This is not an ephemeral or abstract trend. It is a continuation of the sophisticated advances in technologies, accelerated by the demographic shift towards online entertainment, socialising, working, and communicating. Below, we classify the resultant diverse opportunities into four key sub-themes.

 

Gaming

Gaming is closely associated with the Metaverse and it is where we find the most advanced developments.

Opportunities range from pure gaming plays such as Electronic Arts, developers of gaming franchises such as The Sims. Roblox is a leader in the Metaverse space with more than 50 million daily active users of its gaming engine, Roblox Studio, to create, share, and buy and sell games.

M&A activity has a huge impact on gaming stocks. The big developers are often keen to add both emerging and established success stories to their portfolio of franchises.

If Microsoft’s acquisition of Activision Blizzard receives regulatory approval, Microsoft will become the world’s third biggest gaming company, adding immersive and collaborative experiences, such as Call of Duty, to its armoury.

‘Gaming’ also encompasses the enabling technology and equipment manufacturers, such as Sony Group. Sony is developing a next-generation virtual reality (VR) headset which will amplify the immersive effects of gaming, and virtual events, and performing.

Equally key are gaming engine developers, such as Unity Software, with its proprietary 3D gaming engine. It has made a series of acquisitions that help bring artificial characters and their appearance and behaviour within the Metaverse closer to reality.

 

Socialising

Meta intends to continue to invest more than $30bn into artificial intelligence (AI) and the development of a Metaverse platform named Horizon.

It also intends to continue to invest in hardware – devices such as Oculus VR smart glasses and augmented reality (AR) lenses are expected to boost its profile in an increasingly competitive landscape and draw more people into using more of the Metaverse.

Companies that may previously have restricted their social media activity to advertisements or sponsored ‘influencers’ are now finding more dynamic and targeted ways to engage with consumers via the Metaverse.

This can range from technology that allows consumers using smartphones or webcams to virtually try out fashion and beauty products before purchase or through companies that enable the sale of non-fungible tokens (NFTs).

Nike has already begun the sale of digitally designed footwear. Through its acquisition of digital clothing company RTFKT Studios, consumers can now customise virtual Nike shoes for significant sums of money. This also provides a boost to Snap Inc, which offers AR filter technology for viewing these items in a ‘real life’ scenario.

Another normalised social phenomenon is online dating. The CEO of Tinder has already pointed to evidence that younger users are seeking to demand a more immersive experience that connects with other outlets for their online presence such as gaming and music streaming.

This potentially bodes well for social discovery and video technology companies to provide an avatar-based virtual experience, such as Japanese social media company GREE Inc, an early adopter of developing and monetising virtual avatar use.

 

Working

The promise of the Metaverse as a tangible investment opportunity is closely linked to the growing convergence of the virtual and physical worlds. Zoom Video Communications continues to invest in Metaverse initiatives such as its app, Welo, which aims to create a ‘mini-Metaverse’ for dedicated VR meeting environments.

Autodesk is a major developer and provider of computer-aided design (CAD) and engineering software for architecture, manufacturing, engineering and construction industries. It is investing in Metaverse capabilities to create a ‘digital twin’ – an identical digital copy of a complex physical object.

Meanwhile certain medical needs can be addressed via immersive VR connections. Digital healthcare company Livi is known for its partnership with the NHS and has already provided virtual appointments to more than three million patients.

The Metaverse healthcare market takes this to the next level, providing treatments within the virtual space and the size of the potential market is expected to grow to $5.4bn between 2024-2030.

 

Enablers

The capabilities of the Metaverse owe a great deal to advanced chips and the capabilities they power.

NVIDIA has a strong portfolio of assets which are used in computationally intensive fields such as gaming, data science, AI and augmented and virtual reality.

It also has a strong commitment to the Metaverse and its additional networking business segment has unveiled a new software suite named Omniverse to this end.

ASML, a market leader developing and producing the photolithography machines used to produce chips, is helping to provide the technology to build the complex virtual worlds needed for a truly immersive Metaverse experience.

Companies that design advanced chips also rely on semiconductor manufacturers to provide the capacity and capabilities to produce those chips, like Taiwan Semiconductor Manufacturing.

Equally, it is important to build and maintain a security framework to ensure that the Metaverse continues to develop in a positive way. Companies such as Palo Alto Networks, a global cybersecurity leader, which offers next-generation firewall services to prevent and detect increasingly sophisticated cyberattacks.

Crowdstrike Holdings is a cybersecurity company which recognises the need for increased security within the cloud, and provides intelligence and cyberattack response services to help people, companies and organisations keep their data and virtual property secure.

Pauline Llandric is a portfolio manager at AXA Investment Managers. The views expressed above should not be taken as investment advice.

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