The Metaverse is a hot tech trend that is currently in the early stages of growth, but is expected to become huge in the long run thanks to its ability to connect people across the globe in virtual worlds.
In simpler terms, people can work, play, learn and socialize in the metaverse from the comfort of their homes using mixed reality devices that support both augmented reality and virtual reality. Unsurprisingly, investment in this space is expected to grow rapidly in the coming years. A third-party estimate predicts that the metaverse market could grow at nearly 48% annually through 2029, reaching a size of just over $1.5 trillion by the end of the forecast period.
Nvidia (NVDA) 4.10%† and Microsoft (MSFT) 1.07%† are two companies that can help investors capitalize on this trend. Let’s take a look at why the metaverse could send the stocks of these tech giants into a bull run.
Nvidia can take advantage of the metaverse in several ways. In fact, the graphic design specialist is already reaping the benefits of this emerging tech trend by feeding Metaplatforms† (FB 0.92%† supercomputer that is supposed to support the growth of the metaverse. Meta’s artificial intelligence (AI) Research SuperCluster (RSC) supercomputer is powered by just over 6,000 Nvidia graphics processing units (GPUs). The supercomputer will eventually be powered by 16,000 Nvidia GPUs once Meta completes its expansion.
Meta believes that “the work done with RSC will pave the way for creating technologies for the next major computing platform – the metaverse, where AI-based applications and products will play an important role”. This means that demand for Nvidia’s GPUs should ideally explode in the long run as data centers, servers and supercomputers need to be upgraded to address the real-time delivery of 3D content to millions of people around the world.
However, this isn’t Nvidia’s only opportunity in the Metaverse. The company believes that, in addition to chips, the metaverse will also create strong demand for enterprise software. According to Nvidia, the hardware and software capabilities together represent a $300 billion addressable market.
Now we’ve seen how Nvidia tends to win on the hardware side of the metaverse. The good part is that the software opportunity is also taking off. Known as the Omniverse, Nvidia already has a scalable development platform that allows creators and developers to create virtual worlds, especially digital twins — virtual replicas of physical objects and spaces in the real world.
In addition, Nvidia claims that more than 400 companies have evaluated the adoption of its Omniverse platform. car giant BMW uses the Omniverse to create a factory digital twin, while Ericsson uses the platform to simulate and visualize 5G wireless networks before launching.
All of this indicates that Nvidia’s business could get a nice boost from Metaverse, and it could play a substantial role in accelerating the company’s already excellent growth rate. Nvidia ended fiscal 2022 (which ended Jan. 30) with a 61% year-over-year revenue increase to $26.9 billion, and the Metaverse Opportunity indicates that it marks the surface of a huge opportunity.
Analysts expect Nvidia to see 30% annual earnings growth over the next five years, and adding opportunities like the metaverse could help it grow faster and spur long-term action.
Microsoft is another tech giant that is well on its way to winning the metaverse in a number of ways, including the lucrative video game space.
Earlier this year, Microsoft announced that it was Activision Blizzard in a deal worth $68.7 billion. Announcing the acquisition, Microsoft’s press release stated that “the acquisition will accelerate the growth of Microsoft’s gaming business across mobile, PC, console and cloud and provide building blocks for the metaverse.” It’s worth noting that Microsoft already has a strong foundation in the games industry thanks to its Xbox consoles, Game Pass video game subscription service, and a large library of game titles, thanks to its ownership by several game studios.
This puts Microsoft in a strong position to leverage the metaverse gaming capability, which is expected to grow at a breakneck pace. Grayscale, a cryptocurrency asset management company, estimates that virtual gaming worlds could generate $400 billion in revenue by 2025, up from $180 billion in 2020. Nearly all virtual gaming revenue will come from spending in games, according to Activision’s user base. of 400 million, Microsoft will give access to a wide range of players from which it can generate additional spending to fuel the growth of its gaming business in the metaverse.
In addition to games, Microsoft has already dived into the metaverse with Mesh for Microsoft Teams. Based on the famous collaboration tool Microsoft Teams, this product allows people in different places to join meetings in immersive 3D spaces through their virtual avatars. Microsoft Teams has a user base of more than 250 million, allowing the company to market its metaverse collaboration tool to a wide audience.
Meanwhile, Microsoft also plans to leverage the application of the metaverse in the industrial sector, where it plans to cater to the growing demand for digital twins. This could be a smart move by Microsoft, as the digital twin market is expected to generate $61 billion in revenue by 2027, compared to $10 billion last year, according to Mordor Intelligence.
Add to that the company’s prospects in other lucrative markets such as cloud computing and video games, and it should come as no surprise that Microsoft is maintaining its impressive long-term growth. The company’s revenue increased 18% year over year in the third quarter of fiscal 2022 (ending March 31) to $49.4 billion, while adjusted profit was up 14%.
Analysts expect Microsoft’s revenue to grow 16% annually over the next five years, but don’t be surprised to see Microsoft outperform that, thanks to lucrative growth engines like the metaverse. That’s why buying Microsoft stock seems like a good idea right now, as it trades at 26 times earnings, down from the five-year average multiple of 37.