Top metaverse stocks: Everything you need to know about the metaverse

What is a metaverse?

‘A virtual-reality space in which users can interact with a computer-generated environment and other users’ – Lexico.

The term ‘metaverse’ is thought to have been first coined by Neal Stephenson in his 1992 novel named Snow Crash, in which he describes a ‘computer generated universe’. Although the concept of a metaverse is not new, it is only just starting to become a reality today as a number of businesses pursue the unlimited opportunities that a new virtual world could offer.

At a basic level, a metaverse is a 3D online world that allows people to interact virtually with other users, businesses and experiences. People can traverse different online spaces, from virtual shops to a friend’s living room, ultimately transforming digital content into immersive experiences by using virtual reality and augmented reality that allows the digital and physical worlds to fuse together.

The complex and evolving nature of metaverses can be hard to pin down but, like many inventions and creations, the concept has been inspired by books and films. Think of titles like Ready Player One, where a flourishing virtual world replaces the collapse of the physical, and Avatar, where humans use physical avatars to navigate an alien world. Whether it be Tron, Iron Man, or The Matrix, the metaverse has been a key theme for the sci-fi industry for decades.

There have already been numerous attempts to create a fully-functioning metaverse, although none have led to rapid and mass adoption among users, possibly because they came before their time. One of the most popular is Second Life, which is still going after being launched back in 2003. Reports suggest Second Life had around one million users at its peak.

There are a number of other terms used to describe the same thing as a metaverse, including megaverse and multiverse.

The metaverse: what is the business opportunity?

Creating a new world, albeit a virtual one, creates new opportunities. The fact any metaverse will expand and evolve over time and adapt to new technological developments means the possibilities could be endless – and this, understandably, is prompting businesses into action. Whatever exists in the real world can also exist in the metaverse and some of the world’s biggest companies are working on projects to bring digital versions of their products and services to life.

Let’s have a look at a select few areas to explain the opportunities the metaverse will offer businesses.

Shopping

Shopping for virtual goods – from clothing to don your metaverse-travelling avatar in to housing and cars – is likely to be an early area explored by companies looking to capitalise on our new virtual lives. If it can be bought in the real world, then there seems little reason why it can’t be copied and sold in the metaverse. For example, many computer games such as Fortnite already allow users to spend money on what are known as ‘skins’ to kit-out their online characters. People will also want their own virtual space to call home and host guests, and the array of goods and services that could be offered to fill them seem limitless.

Another prime example is Non-Fungible Tokens (NFTs), which can be anything that is digital from artwork and music to tickets to an event and memes. These could be key for companies wanting to launch digital products in a metaverse.

Finance

A virtual world needs a virtual currency. Although companies will be looking to reap real-world money from people in the metaverse, payments and finance are likely to be handled by some form of cryptocurrency or digital coin and many purchases and transactions are likely to be handled by blockchain-driven systems. For example, most NFTs are part of the Ethereum blockchain that is known for its ability to offer smart contracts.

Entertainment

The pandemic has already demonstrated the possibilities of virtual events, from music gigs to sporting events. The metaverse will be the perfect place for artists and creatives to target a larger audience with ease. Forget renting out a 50,000-seater stadium for weeks on end to perform to your fans and say hello to holding massive events that can target an unlimited sized audience. We have already seen musicians including Ariana Grande, Travis Scott and Royal Blood tap-into gaming platforms like Fortnite, Roblox and Minecraft to hold large virtual concerts that have attracted millions of viewers.

Work

As fun as the metaverse sounds, it is not all play and no work. The world has shifted to a hybrid way of working and working remotely is now common for many office workers. With this in mind, businesses are expected to embrace the metaverse in order to bridge the gap between those at home and those in the office. Instead of forcing people in front of a camera for endless online meetings, businesses will be able to host meetings in the metaverse, with those at home plugging into their virtual office while those in the room can utilise VR and AR to interact with them.

Businesses are also likely to make copies of their physical stores to entice customers in the metaverse and sell virtual versions of their products (or even physical goods that can be bought in the metaverse and delivered to your door), allowing them to deepen interaction with customers even if they are at home.

What challenges does the metaverse face?

The metaverse presents plenty of opportunities but will also face several major challenges, especially in the early days. For one, it looks like there will be a number of metaverses rather than a single one considering numerous big businesses from Meta (Facebook) to Microsoft are attempting to build their own. That fragmentation means numerous, possibly unconnected metaverses co-existing, in the same way there are several social media platforms today that cater to different audiences and needs. If one company can carve out the space for itself then it will own arguably the biggest development for the Internet since it was created.

That fragmentation could also impact the speed of adoption. Ideally, the industry wants new metaverses to be adopted in the same way Facebook became the social media platform of choice relatively quickly, going from 100 million users within four years of launching back in 2004 to over 2.9 billion today. One thing that looks certain is that a metaverse is likely to appeal to younger, more forward-looking people compared to older generations.

Businesses will also have to completely overhaul their approach when it comes to operating in a metaverse compared to how they act in the real world. This will see businesses shift their use of the Internet from posting online ads to much more complex and interactive forms of engagement with audiences. This will test how innovative and creative businesses are.

Lastly, and arguably the most significant immediate risk facing the metaverse, is how cyber security is handled. Online fraud and theft have already increased markedly as more of people’s lives shift online, and a metaverse will be ripe for cyber criminals looking to take advantage of a new and evolving industry. Mix in cryptocurrencies, NFTs and virtual items that are, in essence, nothing but bits of code, and the chance for criminals to capitalise rises even more. Securing any metaverse, alongside all the elements operating within it, will be key to installing confidence and encouraging adoption.

Top metaverse stocks

Let’s have a look at some of the stocks making early moves to create or participate in the metaverse.

Meta

Meta is the new name for Facebook as it embarks on a new journey aimed at pioneering the metaverse. The company is one of several that are chasing the big-ticket prize of controlling the actual metaverse that people and businesses operate in, while creators and developers grow it with new experiences and virtual items to eventually build an economy that Meta can underpin.

The company has said it wants to take the same approach to the metaverse as it did with social media, namely ensuring it is free to use for users and cheap for businesses to use tools and reach their customers.

Meta has said it is hoping to have one billion people using the metaverse within the next decade and see hundreds of billions of dollars being spent on digital commerce. For context, it took Facebook eight years to secure 1 billion monthly active users, so the ambition seems realistic. Still, this also means that the company is likely to spend big in the short-to-medium term and only reap financial rewards at a much later date.

Microsoft

Microsoft revealed at the Ignite 2021 conference that it wants to be the company ‘powering the metaverse’. It said that it is not pursuing what was envisioned by Stephenson back in 1992, but a ‘persistent, digital world that is connected to many aspects of the physical world, including people, places and things.’

‘The metaverse enables shared experiences across both the physical and digital worlds. As enterprises accelerate their digital transformation, the metaverse can help people meet up in a digital environment, make meetings more comfortable with the use of avatars and facilitate creative collaboration from all around the world,’ Microsoft said.

Microsoft’s ambitions are more modest than that of Meta, at least for now, with a focus on how to bridge the gap between office and remote workers. The company has said it is starting off with Dynamics 365 Connected Spaces, a product that ‘provides a new perspective on the way people move and interact with nearly any space, from the retail store to the factory floor’. A second product named Mesh will work with the popular Teams app that will allow remote workers to interact with office workers in meetings using personalised avatars.

Microsoft’s position in the cloud-computing market will also position it to provide a comprehensive set of tools and resources that can physically power the metaverse, with Microsoft conceding that there will be more than one. It has also said its abilities will allow customers to create ‘digital twins’ of physical objects in the cloud to be used in the metaverse by harnessing the power of artificial intelligence and its Microsoft Mesh tool.

Roblox

Roblox, the software firm that allows users to create and interact with 3D digital worlds, was touting itself as metaverse company long before Meta or Microsoft. Roblox defines the metaverse as ‘the concept of persistent, shared, 3D virtual spaces in a virtual universe’. This is another company that is likely to compete with the likes of Meta for the big prize.

The genius of Roblox’s business model is that it offers and runs its software but all of the content, which in this case ranges from virtual worlds to games, is created by users, with over 20 million different experiences having been developed so far. People freely develop their own virtual worlds or explore ones developed by other people. All of this is powered by its own currency called Robux, which is used to buy access to certain worlds and items for the avatar used to navigate the virtual spaces. Roblox works across mobile, desktop, consoles and with virtual reality headsets, allowing it to tap into the entire gaming spectrum.

Right now, Roblox has the closest thing to a working metaverse out of any company on this list.

Tencent

Tencent is taking a different approach to the metaverse. The metaverse in China is likely to evolve separately and differently to whatever emerges in the western world, demonstrated by how the country has its own social media industry while most other countries have embraced platforms like Facebook. This means companies like Tencent, alongside other Chinese giants like Alibaba and Bytedance, will have the opportunity to carve out the space for themselves.

Still, Tencent appears to have chosen to invest in companies that will can create a metaverse ecosystem rather than build a metaverse itself. By this metric, there is an argument that Tencent holds the greatest exposure to the potential metaverse market. For example, it owns stakes in Fortnite creator Epic Games, music streaming platform Spotify and Snap, which is known for its social media platform Snapchat but amongst the leaders in augmented reality. It also has a joint venture with Roblox and Chinese content giant NetEase.

Combine those investments with the fact Tencent has billions of people using its existing apps like WeChat and Weixin, and you have a company poised to be a huge player in the metaverse market as it evolves. This strategy could offer serious advantages in light of China’s stricter rules on the likes of user generated content and decentralisation, which could place a greater emphasis on things like music and gaming to start off with – and that is something Tencent has exposure to in spades already.

Cementing Tencent’s ambitions, the company was reported to have filed for almost 100 trademarks related to the metaverse back in September, including ‘QQ Metaverse’, ‘QQ Music Metaverse’ and ‘Kings Metaverse’ – all of which relate to its existing apps, platforms and games.

Snap

Snap is best known for its social media platform Snapchat but is also regarded as a leader when it comes to augmented reality, which will form a key part in the development of any metaverse.

The company launched its AR glasses named Spectacles earlier this year. Previous versions have failed to make an impact, but the fourth-generation release seems to have come at the right time. Still, the product is targeted more at creators rather than users as it tries to provide more forward-thinking tools to deepen engagement with its younger clientele.

The fact Snap’s audience is primarily made up of people under 29 could also give the firm an advantage considering they are more likely to embrace new developments like AR or the metaverse compared to older generations. That means Snap has an audience that is likely to respond better to new innovative ideas than most of its competitors. Snap’s AR functions open up a world of early opportunities, allowing users to try on physical goods like watches and clothing virtually before they decide whether to make a purchase.

Snap has also launched 3D Bitmoji avatars that look like one of the most advanced on the market. They are highly customisable, with thousands of possible combinations when it comes to the array of gestures and expressions that users can choose from. These allow users to create an entirely virtual character to represent them in the Snap ecosystem, which can interact with other elements such as Snap Map, a virtual mapping system that users can interact with to find Snaps sent by location or find virtual events to watch.

Autodesk

Autodesk provides another angle for those looking to gain exposure to the metaverse. The company provides software used for design, allowing people to virtually create everything from buildings and products to animations used in media and gaming. Although the software is currently used to design virtual things to be made in the real world, the same software could prove to be a key building block for companies and creators looking to develop the metaverse.

This means Autodesk is in a great position to provide the tools needed to bring the buildings, products, avatars and almost anything else that the metaverse requires to life. The fact developers already use Autodesk’s software to create content for virtual worlds within the gaming industry shows it has the tools needed for metaverse developers to thrive.

NVIDIA

NVIDIA is another stock that could become the backbone of any metaverse. NVIDIA’s Omniverse is a multi-GPU real-time simulation and collaboration platform that allows users to create 3D virtual productions. This is in the same wheelhouse as Autodesk’s software and is used by people to design 3D buildings and projects. In layman’s terms, NVIDIA describes it as ‘plumbing for the metaverse’.

This could be significant considering there is likely to be numerous metaverses that will need to be connected together in order to allow people to travel seamlessly across different virtual spaces. Notably, Omniverse is already utilised by partners including Adobe and Autodesk, demonstrating the strength of its product.

NVIDIA’s core business is designing and manufacturing computers graphics units (GPUs), processors and chips could also prove key for those companies building a metaverse, which will require significant investment and upgrades in hardware to bring to fruition.

Nike

Last on the list is Nike, which is a prime example of how consumer-facing businesses and retailers are preparing to pounce on the opportunities that new virtual worlds will create. Nike will not be among those providing software, hardware or digital tools to make the metaverse a reality, but will contribute to creating a viable economy within it.

Reports have surfaced showing Nike has filed seven trademark applications geared toward its entry into any metaverse, including ones covering ‘downloadable virtual goods’ such as footwear and clothing that can be worn by avatars navigating the metaverse. It is also hoping to open a retail store to sell those virtual goods, meaning people will be able to visit a Nike store from the comfort of their own home in the future. It has also filed applications to ensure its key brands and marketing tools, from the ‘Just Do It’ slogan to its Swoosh logo, are ready to be deployed.

For now, this is largely been seen as pre-emptive move to protect its trademarks in a new and nascent market, but reports suggest Nike is prioritising virtual products as a key area going forward. Interestingly, this will push businesses that have traditionally been focused on manufacturing physical products into the tech world. For example, Nike is already advertising jobs for people to design and create virtual goods. Nike has already experimented in virtual worlds by launching Nike-branded virtual footwear for characters to wear in Fortnite and has shown its interest in areas like NFTs.

The metaverse: other sectors and industries to watch

Creating new worlds, albeit virtual ones, is complex and will require input from a variety of industries in order to be a success. It seems highly unlikely that one company will be able to secure all the capabilities needed to control any metaverse entirely considering the number of sectors that will have to be involved to not only create the metaverse but keep it up and running. Below are some other key sectors to watch as the metaverse unfolds:

Telecoms: Operating a virtual world will be reliant on the Internet and mobile data, which is supplied by major telecoms companies. Think AT&T, Verizon, Deutche Telekom, Vodafone and BT.

Cloud computing: Metaverses will also rely heavily on cloud computing for speed and storage, further accelerating the shift away from on-premise servers to the cloud. Think Amazon, Microsoft, IBM, Fastly and Alibaba.

Semiconductors: Chips will remain one of the key bits of physical kit needed to build and operate virtual worlds, which should provide more demand for semiconductor companies. Think Intel, TSMC, Qualcomm, Broadcom, Micron, Texas Instruments and NXP Semiconductors.

Crypto and blockchain: How the world of finance will work in the metaverse is still highly unclear, but it is likely that cryptocurrencies and the blockchain ledger that underpins them will have a role. Virtual worlds will need virtual currencies, while the benefits of blockchain could have even wider applications in the metaverse.

Gaming and entertainment: Just like social media, content will be key in attracting users and improving engagement. The video game industry is already one of the most advanced when it comes to virtual spaces and other forms of entertainment, from music to TV, will be key to providing content for users to interact with and enjoy in any metaverse. Think Netflix, Spotify, Disney, Activision Blizzard, EA, Nintendo, Sony, and Take-Two Interactive.

How to trade metaverse stocks

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