Much has been made of the vast potential of the metaverse, but is it really all it’s cracked up to be when it comes to breaking its component parts down into investment opportunities? Despite its vast potential, metaverse stocks weren’t spared from 2022’s tech stock sell-offs, so why should investors view them differently now?
The first thing to keep in mind for investors curious about the metaverse, is that it’s a market opportunity that carries a cast potential upside for risk-taking investors today. ARK Invest founder Cathie Wood famously claimed that the metaverse will become a multi-trillion dollar market, while Morgan Stanley placed a value of $8 trillion as a future market cap estimate.
Matthew Ball, CEO of Epyllion, was altogether more bullish on the prospects of the metaverse, placing a future value of up to $30 trillion on the market over the next 15 years.
Despite blue chip tech stocks coming under significant pressure throughout 2022, leading metaverse-facing stocks were among the fastest to show signs of recovery following the widespread sell-offs.
Towards the end of 2022, Meta (NASDAQ: META) became the most bought stock on Hargreaves Lansdown, paving the way for an impressive market recovery in early 2023.
As the data above shows, Meta has rallied more than 70% throughout Q1 2023, showing that Mark Zuckerberg’s metaverse ambitions are finally coming to fruition in the eyes of investors, at least.
But is now the time for retail investors to build their confidence in the metaverse and buy into its leading stocks? Or should caution be recommended for a technology that’s still in its infancy? Let’s take a deeper look at the sprawling metaverse landscape and its impact on Wall Street:
Assessing the Scale of the Metaverse
The question for many retail investors is likely to be ‘why?’ The metaverse is certainly a rapidly growing technology and a strong market opportunity, but why should special focus be placed on this technological frontier ahead of other emerging markets like AI or virtual reality?
“There appears to be tremendous real-world business opportunities for investment in this space,” explains Rafaelle Lennox, head of UCITS ETF Product Strategy at Franklin Templeton Investments.
“We believe that we’re on the cusp of the next wave, with decentralization – think smart contracts, cryptocurrencies, and virtual marketplaces. This is the next iteration of the internet, which is 3-D, decentralized and highly interactive.”
Speaking on Franklin Templeton, the Franklin Metaverse UCITS ETF has also shown levels of outperformance that have outpaced the likes of the S&P 500 in 2023 so far. Through the first quarter of 2023, the Franklin Metaverse UCITS ETF grew some 25% while the S&P 500 mustered growth of just under 8% in the same time frame.
Another key facet of metaverse stocks is their application throughout a range of industries. The metaverse is set to be a place that helps to bring new innovations in how we work, play, socialize, and use computational power.
For instance, in the world of gaming, the use of virtual and augmented reality headsets are expected to grow from four million in 2021 to 42 million by 2025. Such is the expected usage of video games within the metaverse that new gaming eyewear is growing in popularity today that’s focused on mitigating the impact of blue light from overexposure to screens.
For Meta CEO Mark Zuckerberg, the potential of the metaverse is far more transformative. Zuckerberg believes that humans will soon live in the metaverse, capable of conducting their daily routines while perpetually plugged into virtual worlds.
Investing in the Diversity of Metaverse Stocks
Metaverse stocks can serve a range of different purposes, and one of the stars of 2023 so far has been NVIDIA (NASDAQ: NVDA). Despite not actively creating metaverse-focused content or structures, NVIDIA generates the computer chips that are most likely to power the metaverse of tomorrow.
As a result of its unique market position, NVIDIA stock has performed exceptionally well during 2023’s cautious tech stock recovery. By the end of Q1 2023, NVDA had climbed more than 85% on Wall Street.
Likewise, stocks that are more directly related to the metaverse, like Roblox (NYSE: RBLX), have rallied more than 60% since the beginning of 2023. Roblox has created one of the world’s most popular iterations of a metaverse, and its continued popularity has helped gamers and individuals with an interest in all things metaverse to gain a foothold in a virtual world.
It may be beneficial for investors to balance their portfolio by adding stocks that are directly linked to developing the metaverse as well as traditional blue chip stocks and stocks that are likely to deliver the mechanics of the metaverse.
Investing in Unpredictability
At this stage, it’s essential to note that the metaverse is a technological frontier that’s still many years away from full fruition. There’s a reason that Matthew Ball’s bold prediction of a $30 trillion ecosystem had a 15-year timeframe. What the metaverse will ultimately become is unknown, and this means investing in this emerging technology carries plenty of risk.
For the companies that ultimately become the stars of the metaverse, it’s highly likely that investors will see handsome returns for their investment. But adding metaverse-facing stocks to a portfolio is likely to be a remarkably long-term investment that will benefit investors who are willing to add more risk to their portfolio.
If the early signs of a metaverse stock rebound in 2023 are anything to go by, the future is certainly bright for one of the world’s most talked-about investment opportunities. But here more so than ever, it’s important to balance opportunity with caution.
