Metaverse adoption is expected to gain momentum in 2022 as several companies are set to launch new products aimed at helping consumers work, play, or study in a virtual world.
Goldman Sachs estimates that companies could spend $1.35 trillion in the next few years to develop the metaverse, which means that there's an opportunity for investors to make money out of this emerging technology trend. Advanced Micro Devices (AMD 0.04%) and Qualcomm (QCOM 0.47%) are two companies that could win big from the proliferation of the metaverse. Let's see why.
1. Advanced Micro Devices
After Facebook rebranded itself as Meta Platforms (META -0.50%) in October 2021 and announced that it would be betting big on the development of the metaverse, it chose AMD's EPYC server processors to power its data centers. AMD's partnership with Meta could turn out to be a big deal in the long run as the latter invested $10 billion into metaverse-related initiatives last year.
Meta CEO Mark Zuckerberg had pointed out on the company's October 2021 earnings conference call that he expects the company's investment in the metaverse "to grow even further for each of the next several years." As data centers are expected to play a critical role in the rollout of the metaverse, Meta is likely to spend more money on upgrading capacity or building faster servers that would be capable of serving metaverse customers in real-time with low latency.
As a result, the need for hyperscale data centers that can tackle huge data loads should increase. Not surprisingly, the size of the hyperscale data center market is expected to hit $77 billion in 2027 as compared to $26 billion in 2019, as per a third-party estimate. AMD has put itself in a solid position to tap into this massive opportunity with its Meta partnership.
This, however, is just one of the ways AMD is on track to take advantage of the metaverse. Gaming is one area where the use of the metaverse is already prevalent, as evident from virtual reality (VR)-enabled games that gamers can already play with the help of headsets. The VR gaming market is expected to grow at an impressive pace of 31% through 2028, and AMD is on track to win big from this space as it is a supplier of chips to Microsoft and Sony for their latest gaming consoles.
Both Microsoft and Sony sell headsets that allow gamers to experience games in virtual reality. As the number of VR-compatible games increases along with the metaverse, more people can be expected to buy gaming consoles and headsets from Sony and Microsoft. Not surprisingly, the gaming console market is expected to clock a 15% annual growth rate for the next five years, according to Mordor Intelligence.
All this indicates that the metaverse could unlock another growth opportunity for AMD in the long run, which makes it a top growth stock to buy for the long run, given the additional catalysts it is sitting on.
Qualcomm is known for its chops in the smartphone market, where it holds second place in the application processor space with a 27% share, according to Counterpoint Research. It looks like Qualcomm is now on track to take a big chunk out of the VR market as well since it has partnerships with leading players to provide chips for headsets that will help consumers get a taste of the metaverse.
Meta Platforms' Oculus Quest 2 VR headset is powered by Qualcomm's XR2 chipset platform. The good part is that the Oculus Quest 2 seems to be in great demand already. Meta had reportedly shipped 10 million units of the device by November 2021, which means that it took just over a year to hit that milestone since launching in October 2020.
Market research firm IDC estimates that shipments of augmented reality/virtual reality (AR/VR) headsets could increase from 9.7 million units last year to nearly 44 million units by 2025. So, Qualcomm seems to have made an impressive start in this market thanks to its partnership with Meta. More importantly, Qualcomm is looking to push the envelope in the AR/VR headset market with new partnerships.
Qualcomm recently said that it is working with Microsoft to make custom chips for AR glasses. These glasses will be compatible with metaverse apps and will target both businesses and retail consumers. What's more, Qualcomm will also provide software to enable AR functions in wearable glasses. This could unlock another solid opportunity for Qualcomm as the AR/VR software market is expected to clock nearly 74% annual growth through 2027.
Wall Street expects Qualcomm's earnings to increase at an annual rate of 25% for the next five years, though it won't be surprising to see the company's success in the metaverse help it clock faster growth. Finally, Qualcomm is trading at 23.6 times trailing earnings and 17.6 times forward earnings. This makes it cheaper than the S&P 500 Index that has an earnings multiple of 29, which is why Qualcomm is a no-brainer metaverse stock to buy right now.