Talk regarding the coming metaverse has reached a fever pitch in recent months. In the latest development, Meta Platforms (META -4.27%) -- the company formerly known as Facebook -- changed its name to highlight its focus. But what exactly is the metaverse and how can investors profit?
Simply put, the metaverse is a virtual world that will harness the power of a collection of nascent technologies, including augmented reality (AR), virtual reality (VR), and video, and allow users to interact in a digital world. While this might seem like so much science fiction, many of the elements are already in place and companies are racing to stake their claim in this brave new world.
Investors are always looking for the opportunity to get in on the ground floor of the next big trend, and the metaverse could provide one such opportunity. Let's look at three companies well-positioned to benefit from this evolving trend, which could make investors a fortune in the process.
Nvidia: Underpinning the metaverse
There's little question that Nvidia (NVDA 0.14%) has already been a boon to shareholders in recent years. The designer of graphics processing units (GPUs) is the undisputed leader in the space, with a dominant 83% share in the discrete desktop GPU market.
Parallel processing -- the ability to run a multitude of complex mathematical calculations at lightning-fast speeds -- not only helps render lifelike images in video games, but has also made GPUs a staple for building artificial intelligence (AI) systems and moving data in cloud computing systems and data centers. It also enables groundbreaking technology in self-driving cars.
This has helped the stock climb more than 130% over the preceding 12 months and deliver a staggering 8,800% gain in the past decade. Investors might be surprised to learn this could be just the beginning.
Nvidia GPUs underpin many of the technological advancements necessary to bring the metaverse to life. Using the same technology the creates life-like images in video games, these semiconductors perform a similar function in the digital realm.
The company continues to produce stunning growth even as the metaverse moves from the drawing board to reality. In the third quarter, Nvidia delivered revenue that grew 50% year over year, which doesn't even include the massive opportunity the metaverse has to offer.
Nvidia generated revenue of $16.7 billion last year, but that pales in comparison to the company's total addressable market (TAM), which management estimates at $250 billion by 2023.
Powering the metaverse will only expand Nvidia's already massive opportunity, adding another $10 billion target market over the coming five years.
Roblox: A budding metaverse
If the metaverse is a virtual world where users build homes, work, and play, then Roblox (RBLX -3.00%) already has a head start. The online entertainment platform allows users to build, explore, and create video games and 3D digital worlds.
Well-known musicians host listening parties and perform virtual concerts for their users and Roblox was named to Time's inaugural list of the Time100 Most Influential Companies, which are "making an extraordinary impact around the world."
One example of how users interact with Roblox's digital realm is the recently introduced "Vans World." The shoe and apparel company focused on action sports sponsored a virtual space dedicated to its products. The immersive experience allowed users to "go skateboarding, check out the shop, [and] see what new items Vans had for sale." Users can even browse and buy physical items. This provides just a glimpse of the vast digital worlds that Roblox could create.
Roblox's third-quarter earnings bucked the common "reopening" narrative, which posited that companies that thrived during the pandemic were due for a correction. Revenue of $509 million increased 102% year over year, while bookings of $638 million increased 28%. While the company's net loss expanded by 52%, its free cash flow increased 7% to $171 million.
Daily active users (DAUs) of 47.3 million climbed 31% year over year, while hours of engagement of 11.2 billion climbed 28%. This illustrates that not only is Roblox attracting new users, but existing players are highly engaged. The growing user base attracts more developers, creating a virtuous cycle.
Roblox generated revenue of roughly $924 million in 2020, but management estimates put its market opportunity at $600 billion, which suggests a vast opportunity remains.
With a budding metaverse of its own, Roblox may well have a jump on the competition.
Meta Platforms: All-in on the metaverse
No discussion regarding the metaverse would be complete without the inclusion of Meta Platforms. The company formerly known as Facebook signaled it was going all-in on the metaverse with its recent and highly publicized name change.
Late last month, at a keynote address at the company's developer conference, CEO Mark Zuckerberg said, "From now on we are going to be metaverse first, not Facebook." Moving forward, Meta is turning its focus to building products and services that will usher in the era of the metaverse, describing it as, "the next evolution of social connection ... [where] you'll be able to socialize, learn, collaborate and play in ways that go beyond what's possible today." Zuckerberg goes further, positing that there could be as many as 1 billion people joining the metaverse over the next 10 years.
Meta Platforms has already invested in a number of products that could eventually act as a gateway to the metaverse. The Oculus virtual reality headset, Smart sunglasses in collaboration with Ray-Ban, and the Portal video-chatting device are likely just the beginning. Facebook Reality Labs is working on haptic gloves that could help users "feel" virtual objects in the metaverse.
The company's social media platforms, led by Facebook, will provide Meta Platforms with the capital it needs to usher in this change. In the third quarter, revenue of $29 billion grew 35% year over year -- even as the specter of privacy reforms rolled out by Apple (AAPL -1.76%) hung over the proceedings. Even in the midst of those headwinds, Meta generated more than $9.1 billion in net income and $9.5 billion in free cash flow, giving it plenty of resources to pursue its virtual aspirations.
Virtual worlds = real opportunity
Make no mistake: While the metaverse is still largely conceptual, it's coming and the opportunity is vast. Morgan Stanley analyst Brian Nowak believes the metaverse represents an $8 trillion addressable market, and companies are scrambling to stake their claim.
Each of these businesses represents an early mover working to create the coming metaverse and while its full potential is still years away, these companies are setting the stage, which could make investors a fortune over the coming decade.