Metaverse is advanced technology that aims to seamlessly blend physical components with digital ones. You can sit at a conference table and see some people in person, while others are digital. This has spelled big things for the metaverse stocks on the market.
This investment opportunity is high-risk, high-reward due to the novelty of the technology. The best-case scenario for investors is technology that changes how people communicate with each other. The companies investing in this technology hope metaverse devices are the new smartphones.
The worst-case scenario for investors is that the technology falls flat and doesn’t reach a large enough market to justify costs. Many metaverse stocks can still deliver solid results for investors even if metaverse technology falls flat. However, investors can be in for big pay days by 2030 if these three metaverse stocks benefit from the emerging technology.
Microsoft’s (NASDAQ:MSFT) vast exposure to video games and cloud computing puts it in a good position to capitalize on the metaverse. Microsoft recently released a press release that details some of the company’s ambitions for the metaverse.
Microsoft views the metaverse as an innovative component that can help with creating defense products, processes, and operations. This technology makes it easier to access real-time data. This functionality can extend to commercial businesses that want to create better products, become more efficient and achieve their goals. It also works for video games.
Microsoft is quite bullish on the metaverse, and its other business segments give it plenty of insulation in case the innovative technology flops. The company has strong financials and an attractive valuation. Shares trade at a 34 P/E ratio and the dividend yield is approaching 1%.
Microsoft stock has gained 36% year-to-date and is up by 205% over the past five years. The company has healthy profit margins, and the metaverse can help maintain the high margins.
Unity (NYSE:U) is a speculative video game software development company that has high revenue growth but deep losses. It isn’t the type of stock that would make it in my portfolio, but investors with higher risk tolerances may want to give this stock a closer look.
Unity helps video game creators create more immersive experiences through the metaverse. Games like Pokémon GO were created in Unity. Although the app is several years old and out of many adults’ minds, it’s important for investors to remember the app’s massive popularity at release.
The game reached 65 million users within the first seven days of launch. It’s an early example of the metaverse. Any Pokémon game will sell, but the app’s level of success caught many people by surprise.
While metaverse technology looks to be a rising trend in video games, Unity stock hasn’t been doing well. Shares are down by roughly 60% from its IPO. Shares are flat year-to-date.
Many innovative companies have had poor IPOs and a few years of bad performance before picking up momentum. Unity has the growth numbers to justify optimism among investors. The company reported 80% year-over-year revenue growth in the second quarter. The company’s high net loss ($192.2 million in the second quarter) is the only thing holding the company back from a much higher stock price.
The metaverse is advanced technology that requires significant computing power to operate. The companies creating devices that support this innovative technology need advanced chips as the bedrock.
Nvidia (NASDAQ:NVDA) produces essential GPU chips that are ahead of the competition. Nvidia’s chips have become the top resource for artificial intelligence tools and metaverse technology. It’s no wonder shares have jumped by 189% year-to-date and are up by 734% throughout the past five years.
Nvidia’s stock has gone through a correction, with its share price down by more than 10% from Oct. 16 to 20. The correction has lowered the P/E ratio to 100. While that may sound excessive, the forward P/E ratio of 27 looks more enticing.
Investors should be a bit cautious in the short-term because the government is limiting which AI chips can go to China. This restriction can hurt Nvidia’s finances in the short run, but it should still post exceptional revenue and earnings growth.
Long-term investors can stay focused on the 5-10 year time horizon which looks more attractive for the stock. Nvidia stock is built to get through current headwinds. If the company maintains its elevated revenue and earnings growth for a few more quarters, the P/E ratio will look more reasonable in the future.