Plug your portfolio into the metaverse
Here’s how to profit from the future of the internet
The metaverse is the future, or so Mark Zuckerberg and Satya Nadella are convinced. So certain is Zuckerberg of the potential of this next phase of the internet that Facebook, the company he founded and leads, is known as Meta Platforms.
Nadella, the chief executive of Microsoft, is making clear the extent of his ambitions through this week’s $69bn (£50bn) purchase of video games giant Activision Blizzard, which makes Call of Duty.
The deal should alert private investors to the mounting hubbub about the metaverse.
For the uninitiated, the metaverse is an immersive 3D digital ecosystem which you enter wearing a VR (virtual reality) or AR (augmented reality) headset.
In this sphere, users will not only be able to play video games but also work, shop, socialise, consult a doctor or go to a gallery.
Bloomberg Intelligence is forecasting that by 2024, companies will be earning revenues of $800bn from the metaverse economy, amid ‘the disruption of everything that hasn’t yet been disrupted’, as an analyst at Jefferies, the US investment bank puts it.
You may be highly sceptical, as some much-hyped digital innovations went nowhere.
In 2003, the Second Life system offered the chance to live virtually. But at the time, the notion sounded too sci-fi.
however, Jonathan Tseng of investment management firm Fidelity International contends that the shift to the metaverse is an inevitable progression, similar to the transition from surfing the net on a desktop computer a decade ago to using our mobile phones.
‘The metaverse is not the next internet, but the future of the current one,’ he says.
‘It will be a digital layer that can enrich and enhance the surrounding world.
‘The possibilities are endless. Consumers will be able to use headsets to teleport to the Olympics or change the view outside their window to a Caribbean beach.’
James Yardley of Chelsea Financial Services argues that improvements in graphics and VR technology will enhance every metaverse activity: ‘We are already almost at a photo real experience – which means that you can’t distinguish with your eyes between the real world and the VR world.’
he adds that the metaverse will cut costs for companies as it can be used to create and test simulated versions of products, limiting the expense of real world manufacturing. he says Nvidia, the US giant trying to take over UK chip designer Arm, offers the Omniverse, a platform on which such ‘digital twins’ can be evolved. You may be dubious about this digital enterprise. But it is likely that more of our lives will be led online, even when the pandemic recedes.
Commerce has already crossed over into the metaverse – and that will be the route to attracting younger consumers in the view of fashion giant Ralph Lauren, US discounter Walmart and other retailers.
Sotheby’s has an auction house on the Decentraland online marketplace for trading in digital artworks. Samsung and 400 other Korean companies have formed a metaverse alliance with millions of users.
VIDeO game makers devise and offer their creations on the online platform Roblox, a Nasdaq-quoted stock. In light of this, it’s worth taking a look at companies like Meta and Microsoft that are stepping into the metaverse, but would still flourish even if the dream fades.
Note that, for the moment, Apple is not getting involved, although its next launch will be a VR headset.
Rob Morgan of Charles Stanley Direct emphasises that companies at the forefront early on may not endure: ‘Google and Meta, for instance, did not exist in the early years of internet growth.’
This suggests that you should operate on the ‘picks and shovels’ principle, remembering the fortunes that were made by suppliers of kit to the Gold Rush, rather than the prospectors.
Meta’s ownership of the VR reality headset business Oculus Rift is underpinning Zuckerberg’s bet.
Intel, the silicon chip maker, estimates that metaverse projects will eventually need at least 1000times the computing power we have now.
Since demand for microchips should soar, watch out for weakness in the prices of Nvidia and TSMC (Taiwan Semiconductor Manufacturing Company) as buying opportunities.
Fundsmith, where I am a holder, has stakes in Meta and Microsoft. Baillie Gifford Pacific, meanwhile, holds Samsung.
For exposure to Meta, Roblox and Unity Software, the video game software group and other metaverse infrastructure companies, Dzmitry Lipski of Interactive Investor suggests the Polar Capital Technology investment trust. It is at an 8pc discount to the value of its net assets.
This reflects the threat to tech stocks from higher interest rates, and the resolve of US lawmakers to curb Big Tech’s power which the metaverse seems certain to intensify.
A surge in video gaming and gambling in this environment will increase addiction levels, for example. As we learnt this week, Meta is patenting technologies that use eye movements of VR wearers as a means of targeting personalised advertising at them. I will be tip-toeing into this area, but warily.