Artificial intelligence (AI) breathed new life into technology stocks in 2023. However, heading into 2024, investors are becoming pickier about where to invest in AI. One area to consider is the metaverse. Artificial intelligence will facilitate the buildout of the metaverse. That’s a reason to consider adding metaverse stocks to your 2024 portfolio.
Today, when many investors think about the metaverse they immediately jump to virtual reality. However, that’s only part of the vision that tech companies have for the metaverse. Before you consider investing in metaverse stocks, it’s important to understand what the metaverse may ultimately entail.
Ultimately, the metaverse may look like a virtual world where participants can interact with each other’s digital twin. It will be a space for both business and leisure that supplements rather than replaces our physical world. We may not be able to fully imagine it right now, but these companies are. Furthermore, that’s why they warrant attention for investors looking at metaverse stocks.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) is an obvious choice as one of the metaverse stocks to consider. However, it’s also one of the leaders in this space. The company has been building its artificial intelligence capabilities via its Meta AI platform.
One of Meta’s latest advancements is “imagine,” a text-to-image building tool that allows creators to collaborate on their creations. Imagine is focused on users of the company’s social media platforms for now, but it’s not a great leap to see how that fits into the company’s metaverse ambitions.
As for META stock itself, it’s looking like it’s ready for a pullback. The stock is up more than 192% in 2023 but may be finding resistance near its 52-week high.
Is this a case of the 22% earnings growth being forecast in 2024 being priced into the stock? Analysts don’t seem to think so. On Dec. 20, Raymond James initiated coverage on META stock with a “Strong Buy” rating and a $450 price target.
To be clear, that growth has nothing to do with the metaverse. The company’s Reality Labs division, which is where its metaverse ambitions lie, continues to burn through cash. However, that was more concerning when the company was reporting declining year-over-year revenue and earnings. By turning that around, Meta has bought itself some time for its metaverse ambitions.
Nvidia (NASDAQ:NVDA) is another obvious choice among metaverse stocks. As with AI applications, the metaverse will require vast amounts of processing power of the kind that Nvidia provides.
Nvidia’s graphic processor units (GPUs) are the gold standard for these applications. However, the company has expanded into essential semiconductors and chip systems that will be critical to advancements in areas such as the metaverse. The company also offers its Nvidia Omniverse platform and has partnered with Microsoft (NASDAQ:MSFT) with its Microsoft 365 and OneDrive development teams.
With a forward price-to-earnings (P/E) ratio of more than 44 times, NVDA stock isn’t cheap. However, with a forecast for 65% earnings growth in the next year, that could be sustainable. Analysts are bullish on Nvidia with Oppenheimer reiterating its Outperform rating and $650 price target for NVDA stock.
Unity Software (U)
Building the metaverse is going to be an expensive proposition. That’s why many of the most promising metaverse stocks are those of large cap companies. These companies have the balance sheets that will be necessary to create this digital world. With that in mind, Unity Software (NYSE:U) is a mid-cap stock that may merit your consideration.
Unity Software offers a game development platform that allows developers to build interactive 2—D or 3-D environments. One of the main applications for the company’s technology is gaming, but you can see how the technology can be used in the continued buildout of the metaverse.
As evidence of this, Unity in collaboration with Capgemini announced plans to design and scale “tailored metaverse solutions for clients and accelerate the convergene between the physical and digital worlds.”
Unity is growing revenue year-over-year, but the company is still not profitable and it’s not expected to be in 2024. Nevertheless, institutions own 64% of Unity’s stock, which makes it a little more comfortable for retail investors to get involved.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.