There’s a lot of excitement about the Metaverse right now. And I think it’s justified. The mobile market has matured and everyone now owns some kind of portable device. But the augmented reality/virtual reality (AR/VR) market is in its infancy. As an investor, this is what excites me the most. Spot the next trend and research the best companies to invest in. This brings me to my search for metaverse stocks that could really explode in the years to come.
Two of my top picks (outside of Big Tech)
Before we begin, it is worth mentioning Metaplatforms (formerly Facebook). Traditionally part of the “Big Tech” group of American companies, it catapulted the term “metaverse” into the mainstream last year when it was renamed Meta. The company will now focus considerable resources on its own metaverse, while separating its family of social media apps into a separate division. I see a lot of potential in Meta and its plans for the metaverse. But here I want to explore smaller actions that might not be as well known.
The first company is Unit Software which provides a platform for users to create 3D content on AR/VR and many other devices. For example, the Unity platform has been used by disney to create a short film in VR. It also has a top game engine software solution, so I really see it growing in that vertical as well. Analysts expect at least 30% revenue growth from Unity in 2022 and 2023.
I watch too Roblox like an exciting metaverse stock. It is another platform provider for content creators, only here focused primarily on games, but also virtual events. Another great brand, Nike, has teamed up with Roblox to create Nikeland, a 3D theme park where people can play and outfit digital versions of themselves in Nike-branded merchandise. In my opinion, there is huge potential for other companies to leverage Roblox’s expertise to bring their brands into the metaverse.
I must bear in mind that these two companies are still loss-making, which increases the risk of investments.
Metaverse stocks pickaxes and shovels
Investing in single stocks will always be risky. Businesses need to keep performing to keep revenue flowing. With the metaverse, the competition will also be intense, as many companies try to strengthen themselves in this growing industry.
This brings me to one of my favorite quotes from Peter Lynch, the famous fund manager. He describes pick and shovel businesses as follows: “During the gold rush, most would-be miners lost money, but the people who sold them pickaxes, shovels, tents and blue jeans (Levi Strauss) made a nice profit.
So I also think it’s worth mentioning companies like Nvidia, and Taiwan semiconductor. These companies design or manufacture advanced computer chips that will be vital in any version of the Metaverse. I consider them the “pickaxes and shovels” option for metaverse exposure in my portfolio.
With all these investments, I will take a long-term view. Any new industry takes time to develop after all. But over 2022 and beyond, I think these stocks could really explode with the growth of the metaverse, so I would buy them in my portfolio.
Dan Appleby owns shares of Meta Platforms and Nvidia. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. The Motley Fool UK has recommended Nike and Unity Software Inc. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pros. At The Motley Fool, we believe that considering a wide range of information makes us better investors.