Key points:
- The Metaverse is already a new and exciting source of opportunities, with unprecedented potential for scale
- The pace of technological advances has accelerated over the past 50 years, allowing credible opportunities to become investible far earlier
- We aim to clarify some of the most common questions or misconceptions that investors may have
The Metaverse has created a significant amount of buzz in the investment sphere as well as the technology industry and wider media, and with good reason. With a projected global market size of over $800bn by 20301 and rapidly developing and increasing numbers of market participants and products, its ability to connect people, places and things via sophisticated technology is becoming an entrenched phenomenon which spans sectors and industries. However, such a unique, disruptive, and evolving opportunity is bound to attract some questions from potential investors looking to separate the tangible investment potential from the noise, as the Metaverse moves away from its gaming origins and grows. We look to answer some commonly held misconceptions and illustrate why the Metaverse is a promising source of potential long-term growth opportunities when paired with a diligent, actively managed approach supported by leading research capabilities.
Isn’t the Metaverse a relatively new phenomenon?
The Metaverse is exciting source of opportunities due to its ability to draw upon the advances in technological capabilities across hardware, software and infrastructure that, after several decades of development, now move at a far faster pace. There had previously been four key computing platforms introduced over the past 50 years2 ; thanks to this architecture being in place and subsequent breakthroughs in capabilities, developments can now move more quickly from concept to reality, and therefore the marketplace and to consumers – virtual or otherwise. This is part of the reason that established, large companies are investing – they can’t afford to take the risk of falling behind in a fast paced, competitive marketplace3
How do you find meaningful opportunities amongst the hype, and mitigate the risk of early adoption?
The respected business analysis firm Gartner publishes a ‘Hype Cycle’ for innovative, emerging technologies which are expected to disrupt the existing markets. The Metaverse has made multiple appearances on this annually published chart under various guises such as augmented reality (AR) and virtual reality (VR) which were languishing at the bottom of expectations in 2017. For 2022, the Metaverse collectively appears strongly back in the ‘rising expectations’ segment of the chart and is not expected to plateau for more than ten years (which suggests a promisingly tong-term growth horizon)4 . This is, in part, due to companies historically rushing to the marketplace with underdeveloped technologies that were simply too early at the time, and this impatience to monetise a concept often served to increase disillusionment in the real-life potential of the Metaverse. Technology has moved on and at a faster pace, and some of those ideas which had solid concepts, but weren’t backed up by sophisticated enough technologies in the 2010s, are now being more successfully implemented. For example, when Meta (formerly Facebook) acquired Oculus, the VR headset producer in 2014, the technological capabilities of its Rift headset struggled to live up to the hype; Mark Zuckerberg, Meta’s CEO, at the time compared the Rift headset to comparable products in the early days of smartphones.5 In 2023, the Quest 2 headset is a cheaper, standalone headset which no longer requires the user to be tethered to a PC, and this increased mobility is likely to aid mainstream acceptance.6
‘The Metaverse’ sounds niche compared to traditional technology strategies, is there a sufficiently large investment universe for investors?
One of the key drivers of the Metaverse’s potential is the scope and scale that is possible. It’s true that its early origins sit within the gaming world, but now its capabilities are being recognised by major players in industry and in the workplace (see our previous articles on Metaverse Working, and Enablers). Another important point to consider is the concurrent rise of capabilities in artificial intelligence (AI), which exists synergistically alongside the Metaverse and allows it to grow at an even faster pace by utilising technologies that can work more rapidly and more efficiently than a human can.7 As well as accelerating advances, it can also serve to make virtual experiences more realistic and responsive in real time, which is only likely to encourage greater acceptance and uptake.
Of course, one must also not underestimate the depth of opportunities in the core gaming and socialising themes of the Metaverse. Almost 40% of the world’s population are estimated to have played games in 2022 – a potential consumer base of three billion people cannot be dismissed.8 Neither can the value of well-subscribed ‘virtual real estate’ providers, such as Roblox which saw its daily active users increase from 19.1 million at the end of 2019, to 67.3 million as at February 2023, illustrating the persistent and growing success of its paid-for content revenue base from loyal active users.9
OK, sounds promising, but how can this concept be adequately captured in an investment portfolio?
As suggested by the Gartner research, we are at the early innings of a significant transformation, which should gradually unleash its full potential in the next decade. This presents a huge opportunity to invest in the pioneering technology companies of today – many of those positioned at the leading edge of innovation. Investing in these companies offers exposure to a range of underlying technologies, which we characterise as the building blocks that underpin the development of the Metaverse. These blocks come together to form what we refer to as the ‘Metaverse Wall’. To paraphrase Gartner, it is our expectation that the Metaverse cannot be defined as a single technology, but a rather a combination of numerous individually important, discrete and independently evolving technologies that interact with one another to give rise to a mega trend – the Metaverse.
The Metaverse Wall:
We want to participate in the growth of the Metaverse and all of its associated, promising opportunities in line with an investment philosophy, which favours quality growth companies. While the timeline for the Metaverse’s rise to prominence may be up for debate, a robust investment approach can aim to ensure focus on combining Metaverse relevance with solid fundamentals.
Companies shown are for illustrative purposes only as of 20/04/2023. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities.
Risks
No assurance can be given that our equity strategies will be successful. Investors can lose some or all of their capital invested. Our strategies are subject to risks including, but not limited to: equity; emerging markets; global investments; investments in small and micro capitalisation universe; investments in specific sectors or asset classes specific risks, liquidity risk, credit risk, counterparty risk, legal risk, valuation risk, operational risk and risks related to the underlying assets.
- [1] Metaverse Market size worth $ 824.53 Billion, Globally, by 2030 at 39.1% CAGR: Verified Market Research® – Bloomberg
- [2] Virtualisation: The 50 Year Evolution of Cloud Computing (secura.cloud)
- [3] These 8 Tech Giants Have Invested Big in the Metaverse (makeuseof.com)
- [4] 3 Exciting New Trends in the Gartner Emerging Technologies Hype Cycle
- [5] Oculus Rift sales will start off slow, says Facebook CEO (gamedeveloper.com)
- [6] Oculus Quest 2 vs. Oculus Rift S: Which VR Headset Should You Buy? (pcmag.com)
- [7] Why Do AI and VR Go Together So Well? – XR Today
- [8] Why generative AI in gaming could be a gamechanger | Mastercard Newsroom
- [9] Roblox Revenue and Usage Statistics (2023) – Business of Apps
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
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Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.