Company / Analytics

Analytics, 17 December 2021

Top Metaverse Stocks to Buy and Hold

While it’s not yet fully defined, the metaverse will most likely be the most transformative technology of our lifetime. The metaverse could be worth $30 trillion a decade from now.

The metaverse will be a shared virtual world, blending aspects of social media, video games, and the internet. It will allow people to engage with content, interact with each other, and experience almost anything. The potential implications of that technology are tremendous.

The system will be powered by other technologies, from graphics, creativity, and supercomputing. Nvidia is the gold standard in graphics and accelerated computing while Adobe is a leader in creativity software and digital experience solutions. This makes these two stocks important for long-term investment for investors looking for ways to cash in on the new virtual trend.

Top Metaverse stocks to buy

Venture capitalist Matthew Ball recently put a price tag on the metaverse, estimating that it could be a $30 trillion market opportunity 10 years down the road. And Nvidia (NASDAQ:NVDA) CEO Jensen Huang has been even bolder, forecasting that the metaverse economy could eventually surpass the $80 trillion real-world economy. Many investors are looking for ways to cash in on this trend and buying a few shares of Nvidia and Adobe Systems (NASDAQ:ADBE) looks like a great way to do just that.

Nvidia

Mark Zuckerberg, CEO of Meta Platforms (formerly known as Facebook), specifically mentioned one name earlier this year when discussing other companies that could be big winners in the metaverse. That one name was Nvidia (NASDAQ:NVDA). But while Meta Platforms won’t make significant revenue from its metaverse efforts soon, Nvidia will.

Zuckerberg spoke about Nvidia in connection with the graphics chips that will be needed to power the virtual reality apps in the metaverse. He’s right that this should present a tremendous long-term growth market for Nvidia. The chipmaker also has a big opportunity in the near term.

Nvidia is best known for inventing the graphics processing unit (GPU), a chip capable of processing a tremendous amount of data quickly. Over the last two decades, GPUs have revolutionized computer graphics, and Nvidia has established its technology as the gold standard in the video game industry. However, those chips have also become the cornerstone of accelerated computing in data centers, another industry dominated by Nvidia.

Not surprisingly, the chipmaker has made a habit of posting impressive financial results. Revenue soared 64% to $24.3 billion over the past year, supercharged by Nvidia’s gaming, data center, and graphics businesses. Its bottom line grew even faster, as free cash flow rocketed 69% to $7.2 billion.

In the coming years, Nvidia’s expertise in graphics and accelerated computing should make it a key player in shaping the metaverse. Its recent launch of the Omniverse suite only makes that more likely. Specifically, Omniverse is a GPU-powered 3D development platform that allows creators to collaborate in real-time across a variety of 3D design software. That includes products like Unity’s game engine and Adobe Substance 3D.

More recently, Nvidia released Omniverse Avatar, a platform for creating artificial-intelligence-powered avatars (digital automatons) that can think, understand, and interact like real people. That’s important because the metaverse will likely be full of non-player characters (NPCs), a term that typically refers to video game characters not controlled by the gamer. Those NPCs will make the metaverse feel more like the real world, and Nvidia’s technology looks like a perfect fit.

Adobe Systems

Adobe breaks its portfolio into three software clouds: Creativity, digital documents, and customer experience. Creative Cloud is perhaps the best known, featuring tools like Photoshop for image editing, Premiere Pro for video editing, and After Effects for cinematic special effects, all three of which are market-leading products. Likewise, many of Adobe’s Document Cloud applications have also become industry standards, such as Acrobat for PDF management.

The other piece of Adobe’s business is Experience Cloud, a suite of software and services for analytics, marketing, and commerce. Those tools lean on artificial intelligence to help businesses collect data, target content, and personalize the customer journey across mobile apps, websites, and other digital channels. Research company Gartner has recognized Adobe as a leader in the digital experience industry, citing its capacity to manage customer data and personalize content as key differentiators.

Not surprisingly, Adobe’s lineup of best-in-class products has been a powerful growth driver. Over the past year, revenue rose 21% to $15.1 billion, and free cash flow surged 34% to $6.6 billion. Moreover, the company is well-positioned to maintain that momentum, as many products in its portfolio are relevant to the metaverse, especially in the Creative Cloud and Experience Cloud suites. For instance, Adobe Substance 3D is a platform for creating, staging, and texturizing 3D content. Substance 3D is already essential to most video game and visual effects workflows, and it should be a valuable resource in creating the virtual content within the metaverse.

Likewise, the metaverse economy will likely mirror the real-world economy, meaning consumers will be able to shop, attend events, and play games. In other words, providing a high-quality experience will be just as critical in a virtual world as it is in the real world. And Adobe’s tools for analytics, marketing, and commerce fit that bill perfectly.

Unity Software

Unity Software (NYSE:U) stands out as another company that could profit from the metaverse sooner rather than later. Back in the gold-rush days, the biggest winners were those who sold picks and shovels to gold miners. Unity is basically a picks-and-shovels supplier for the metaverse, and for virtual reality apps in general.

The company currently ranks as the leading platform for developing interactive real-time 3D content. Close to 65% of the top 1,000 mobile games in the world were created using Unity’s software.

Unity CEO John Riccitiello plans for his company to achieve a similar dominance in metaverse content. During Unity’s third-quarter conference call, he said: Unity expects to be – as industry after industry after industry wants to move into the metaverse or become real-time 3D interactive with their presentation, whether it’s a car configurator or a shopping experience – we want to make sure that 60%, 70%, 80% of the time, that content built by all of those industries and all of those customers is built in Unity.

Although it will take several years to fully build the metaverse, the effort is already underway. Unity should be able to make money from the earliest stages of the metaverse.

The stock’s performance has been disappointing in 2021, with shares now slightly below where they were in early January. A key reason behind this decline was that Unity’s valuation soared too much too fast in 2020. But with developers needing the equivalent of picks and shovels to build the metaverse, Unity could be in a good position to rebound in the new year.

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