The metaverse is poised to transform the way we interact with digital technology, and presents substantial economic opportunities. To be a better investor, you’ll need to understand the technologies that are shaping the way consumers interact with companies. This guide is aimed at demystifying the Metaverse ecosystem and showcasing ways you can think about and invest in the Metaverse. The reader should come away with more confidence in understanding the technologies, the risks involved and different approaches to invest in this ecosystem.
As technology has evolved, the boundary between our physical lives and our digital ones has become more blurred. That’s led to “the metaverse”: a complex and evolving concept, referring to an immersive 3D digital space made with advanced technologies like virtual and augmented reality.
The metaverse, in essence, merges our real and online experiences, serving as the next phase of the internet. And even though it’s still in early stages, the metaverse holds significant economic potential.
Opportunities in the metaverse and real-life applications
Analysis by McKinsey(1) suggests that the metaverse could have an economic impact of up to $5 trillion by 2030. If you look more closely at different industries, estimates indicate the metaverse could – by 2030 – impact ecommerce by up to $2.6 trillion, academic virtual learning by up to $270 billion, advertising by up to $206 billion, and gaming by up to $125 billion.
Businesses are already embracing the metaverse in various different ways. Ikea, for instance, lets customers virtually place furniture in their homes with its app – ensuring proper size and fit through augmented reality.
Schools are using tools like Google Arts & Culture, which gives students virtual 3D tours of museums and cultural experiences without leaving the classroom. And famous artists like Justin Bieber and Ariana Grande are hosting virtual concerts in the metaverse, where participants are represented by avatars. This hugely expands the potential for entertainment experiences.
(1) ‘Value Creation in the Metaverse,’ a report by McKinsey & Company.
How to invest in the metaverse ecosystem
There are many ways to invest in the metaverse. How you choose to do so will likely change over time, as the use of the technology matures and the value chain evolves. But before you begin, it’s important to understand the metaverse ecosystem, and thereby, which part of the value chain you may want to invest in.
There are four main components to think about:
Content and experiences: What’s actually available in the metaverse, together with the quality of the experience on offer, affects user engagement and interaction. That means industries will benefit from creating a richer experience of their product or service in the metaverse, potentially adding to their sales and bottomline.
In the long run, lots of sectors – from education to healthcare and real estate – are poised to gain from widespread metaverse adoption.
Platforms: The metaverse needs tools like browsers, search engines, and app stores to distribute content and experiences. These platforms encompass social, gaming, educational, and marketplace spaces where users can interact, learn, play, and trade within the metaverse. Examples include Activision Blizzard, Roblox, Tencent, Meta, and Unity Software
Full interoperability between digital worlds obviously hasn’t been achieved yet, but many platforms stand to benefit from metaverse adoption. Just remember to diversify investments across multiple platforms to mitigate the risk of one becoming obsolete.
Infrastructure and hardware: This is the backbone of the metaverse, allowing a seamless experience between physical and digital worlds. Components include semiconductors, servers, high-speed internet, and cloud computing, as well as virtual reality (VR) and augmented reality (AR) devices.
In the initial phase of the metaverse, infrastructure and hardware companies that enable its adoption are likely to see immediate benefits as demand for their metaverse-related products surges. These Include chip manufacturers like Nvidia, AMD, and Qualcomm; cloud computing providers like Amazon, Google, and Microsoft; and VR headset manufacturers like Meta, Microsoft, and Apple.
Enablers: Tools that enable the smooth functioning of the metaverse include blockchain and non-fungible tokens (NFTs), decentralized finance, artificial intelligence (AI), security and digital identity, and data governance. Enablers benefit most when there is significant adoption of the metaverse, and examples include Coinbase, Shopify, Square, and PayPal.
There are pros and cons depending on where you invest in the value chain. But until the metaverse is more widely adopted, it’s highly likely that the “winners” will be a narrow group – mostly in the tech sector. But over time, that’s expected to broaden.
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Risks and catalysts
Although the long-term vision of the metaverse is yet to be realized, the early version of it is well-established. Ultimately, the pace of development will depend on multiple technological and user experience factors – and won’t be limited to one platform, device, or technology.
Factors that’ll drive metaverse adoption include a full rollout of 5G, mainstream adoption of VR/AR devices, and the advance of edge computing (which enables data to be captured, stored, and processed locally rather than in the cloud).
Risks that could derail advancement of the metaverse include evolving regulatory frameworks and ambiguities in intellectual and virtual property rights, privacy and security concerns, and digital inequality – where economic and geographical disparities could create a digital divide.
Investing considerations
Although the metaverse is in its early stages compared to AI, it could follow a similar path of rapid adoption. But just like any investment, it’s important to diversify when you’re diving in.
Consider spreading your investments across various subcategories – the choice of which should depend on things like how they’re valued, how much risk you’re comfortable with, and how long you plan to invest for.
If you’re in it for the long haul, you might lean towards investing in enablers and companies that’ll benefit from incorporating the metaverse into their product offerings. They’ll often give you the chance to invest at a lower valuation multiple. Just bear in mind that you might have to wait patiently for the metaverse’s positive impacts to start showing.
On the flip side, if you’re a firm believer in the metaverse, you could explore companies that provide the infrastructure and hardware – even if their valuations seem frothy.
And if you don’t know where to start, you might consider investing in an ETF like the Global X Metaverse ETF (ticker: VR; expense ratio: 0.5%), Fidelity Metaverse UCITS ETF (FMTV; 0.5%), or the iShares Future Metaverse Tech and Communications ETF (IVRS; 0.47%). Alternatively, you can also find the top 10 Metaverse stocks to invest in on Admirals here.
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