The metaverse has emerged as one of the hottest new growth opportunities in the technology sector. In addition to offering a new medium for socialization and entertainment, virtual worlds could also be a major new avenue for digital commerce and services.
Immersive digital experiences have the potential to reshape the way that the world connects and interacts, and companies that build early leads in the space have the potential to deliver incredible wins for investors. On that note, let's take a look at three hot metaverse stocks on track to thrive in 2022 and beyond.
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1. Unity Software
Unity Software (U 0.92%) provides a platform for developing interactive experiences and computer-generated visuals. Right now, the company is best known for providing a development engine for video games, but its long-term growth opportunities extend far beyond gaming.
With companies betting that consumers will do even more of their shopping and socializing through online virtual worlds, Unity looks incredibly well-positioned to benefit from the evolution of the metaverse. The tech specialist has emerged as the leading provider of development engines for mobile games and has a commanding foothold in the emerging virtual reality (VR) and augmented reality (AR) markets. More than 60% of games and experiences built for AR and VR are already using the company's engine services.
Unity also recently bought visual-effects studio Weta Digital, paving the way to become a provider of digital-effects creation services for film, television, games, and other mediums. To put this growth initiative in perspective, think of what Adobe has accomplished with its suite of content-creation tools including Photoshop, After Effects, and Premium Pro. In conjunction with Unity's other services, there's an incredible opportunity here.
Information is increasingly being communicated through visual mediums, and demand for interactive content looks poised for strong growth through the next decade and beyond. Unity provides tools that will help metaverse visions become a reality, and its stock is a top pick-and-shovel play for benefiting from these trends.
2. Himax Technologies
Himax Technologies (HIMX 0.61%) is a fast-growing hardware-components company that's best known for making display-driver chips that regulate the colors displayed by pixels on screens. It also develops machine-vision and imaging chips. The company's revenue surged roughly 75% year over year in the third quarter, and adjusted earnings in the period climbed 1,278%, so investors interested in the metaverse should take a close look at this one.
With a market cap of roughly $2.8 billion, Himax trades at just 5.8 times expected earnings and 1.6 times expected sales. You may be wondering why the stock trades at such low multiples when the business is posting incredible growth, and that's a great question. It's certainly important to put the company's business and valuation in context.
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Himax's performance has tended to be highly cyclical, with the company's core display-driver business ebbing and flowing in conjunction with hardware cycles in the television and mobile-device categories. When superior new display chips are introduced or major new updates come along and drive sales for TVs, smartphones, and tablets higher, the company enjoys elevated sales and margins. As the cycle moves through its course, however, Himax's sales and earnings have historically taken a significant dip.
With the potential for augmented-reality and virtual-reality headsets to start gaining mainstream adoption, the semiconductor company could be in the very early stages of benefiting from the introduction of a major new product category. This catalyst exists in addition to a major increase in demand for its automotive display chips and the coming mobile-hardware upgrade supercycle driven by technologies including 5G and AR. Low sales and earnings multiples have sometimes been a warning sign for Himax stock because they correspond with the business reaching a cyclical peak, but the picture looks markedly different this time.
3. Meta Platforms
As it stands now, Meta Platforms (META 2.98%) is probably the biggest name in the overall metaverse space. It sports a market capitalization of roughly $936 billion and has recently changed its name from Facebook in order to better reflect the company's new direction. There should be little doubt that CEO Mark Zuckerberg's company is on track to be a massive player in the metaverse.
In addition to its incredible financial and technological resources, Meta's established user base is one of the largest in the overall global-technology industry. Among its platforms, including Facebook, Instagram, and WhatsApp, the company ended its third quarter with a whopping 1.93 billion daily active users.
Its monthly active-user count is even more impressive -- coming in at 2.91 billion. Meta rules the roost when it comes to social media engagement, and there's a good chance that it will be able to leverage its tech strength and stellar user participation to help forge a leading position in the metaverse.
Even better, Meta's competitive advantages aren't limited to its staggering global-user base, top-tier workforce, and financial resources. The company also has a significant head start when it comes to driving hardware adoption, developing virtual worlds, and building foundations for socialization and commerce in the metaverse medium.
As early as 2014, Zuckerberg made it known that he viewed virtual reality as the next major computing platform. This pronouncement corresponded with the company's $3 billion acquisition of VR specialist Oculus Labs.
The hardware and software from Oculus have since been absorbed and rebranded under the broader Meta banner, and the division is on track to continue dominating the VR market. Alphabet and Apple's dominance in the mobile ecosystem has long been one of the social-networking giant's biggest weaknesses, but it looks like Meta is on the verge of securing the leadership position in a hardware-and-software platform that it's so long coveted. If that comes to pass, it's likely that the company's valuation will soar.
