Wall Street expects 2022 to be a banner year for the adoption of the metaverse, as several companies are expected to come out with hardware and software offerings that will help consumers work, play, or learn in the virtual three-dimensional world.
Crunchbase estimates that $10 billion was invested in virtual reality (VR)-related start-ups last year, while Meta Platforms reportedly spent an identical amount on its AR (augmented reality) and VR initiatives as well. Goldman Sachs estimates that the spending on metaverse-related technologies could hit $1.35 trillion over time, indicating that there's a long-term opportunity at hand for investors to take advantage of.
Intel (INTC -0.61%), Himax Technologies (HIMX -0.88%), and Nvidia (NVDA -0.93%) are three tech stocks that could win big from the metaverse. Let's look at the reasons why.
Intel management pointed out in December 2021 that the metaverse could be the "next major transition in computing" as more people will come to rely on digital technology to "communicate, collaborate, learn and sustain" their lives. Management added that this will create the need for major networking upgrades to support the creation of life-like environments and human-like avatars in the virtual world in real-time.
According to Intel executive Raja Koduri:
Truly persistent and immersive computing, at scale and accessible by billions of humans in real time, will require even more: a 1,000-times increase in computational efficiency from today's state of the art.
Not surprisingly, the metaverse is likely to spawn the need for more hyperscale data centers that can support the massive workloads that this emerging technology trend will create. The Dell'Oro Group estimates that spending on hyperscale data centers could increase 30% in 2022. The long-term forecast also appears bright as the hyperscale data center market could clock an annual growth rate of 22% through 2028 as per a third-party estimate.
Intel is in a solid position to take advantage of this rapid growth as its share of the server processor market stood at a whopping 90.5% in the second quarter of 2021, according to Mercury Research. Though Chipzilla has been facing some heat in this market from Advanced Micro Devices, it is setting itself up to defend its impressive share with an aggressive product roadmap that's aimed at helping it regain its technology lead over rivals.
As such, Intel could turn out to be a top metaverse stock, in the long run, thanks to its dominant position in the data center processor market that's expected to witness solid growth. Given that Intel is trading at less than 10 times trailing earnings, now may be a good time for investors to buy shares of this chip giant as it looks primed for a turnaround, with the metaverse set to act as an additional catalyst.
2. Himax Technologies
Himax Technologies may not be a household name, but this chipmaker was a metaverse player way before this concept became popular. In 2013, Google picked up a stake in Himax to fund the chipmaker's display business. The latter was making liquid crystal on silicon (LCoS) chips and modules for the Google Glass, a pair of smart glasses that ultimately failed to take off at that time due to privacy concerns.
However, with the tech world finally warming up to the concept of the metaverse, Himax could find new customers for its LCoS displays that can be deployed in AR headsets and AR-enabled glasses. Himax points out that LCoS is going to play a critical role in AR headsets, since this technology can make headsets compact and more power-efficient while lowering manufacturing costs.
The company adds that its list of customers consists of some of the top players that are launching AR/VR headsets. So, investors looking to mint money from the metaverse should keep a close watch on Himax, as the demand for its LCoS chips could jump once sales of AR/VR headsets hit critical mass. According to market research firm IDC, shipments of AR/VR headsets hit 9.7 million at the end of 2021. By 2025, nearly 44 million AR/VR headsets are expected to be sold as per IDC's estimates, indicating that the market is set to clock a compound annual growth rate (CAGR) of nearly 46%.
With Himax stock trading at 6.7 times trailing earnings and 1.6 times sales, savvy investors should keep this potential metaverse winner on their radar given its rapid pace of growth. The chipmaker's revenue in the third quarter of 2021 had shot up 75% year over year to $421 million, while adjusted earnings per share rocketed to $0.79 per share from $0.07 per share in the year-ago period.
Himax can sustain such terrific growth thanks to the booming demand for its chips in the automotive and smartphone display markets, and the metaverse is likely to become another lucrative market for the chipmaker to tap into.
Share prices of Nvidia have slipped nearly 5% in 2022, which has opened a nice opportunity for investors to get into this potential metaverse winner as it is now trading at 86 times trailing earnings. While that multiple isn't cheap by any means, Nvidia is now trading at a discount to its 2021 earnings multiple of over 90. If the stock continues to slip in the near term thanks to potential interest rate hikes causing a sell-off in tech stocks, investors should consider going long with Nvidia, as it can win from the metaverse in several ways.
For instance, the demand for Nvidia's data center GPUs (graphics processing units) could spike to support the creation of the metaverse. In an interview with market research firm Dell'Oro in November 2021, Nvidia CEO Jensen Huang had explained that data centers will have to evolve to meet the needs of the metaverse. The creation and delivery of virtual 3D worlds at scale to consumers across the globe means that data center servers will have to be accelerated with multiple GPUs.
It is worth noting that the global data center GPU market is already expected to clock a 42% annual growth rate through 2027 and hit $20 billion in revenue. The metaverse could accelerate that already impressive rate of growth.
Another way Nvidia is looking to tap into the metaverse is through its Omniverse Enterprise platform that allows creators to create "physically accurate 3D world and digital twins." The chipmaker had pointed out on its November 2021 earnings conference call:
Initial market reception to Omniverse has been incredible. Professionals at over 700 companies are evaluating the platform, including BMW, Ericsson, Lockheed Martin and Sony Pictures. More than 70,000 individual creators have downloaded Omniverse since the open beta launch in December. There are approximately 40 million 3D designers in the global market.
Nvidia has now made the Omniverse platform generally available to individuals so that artists, designers, and creators can make virtual worlds in collaboration with each other. So, Nvidia won't just provide the means to power the metaverse through its chips but will also enable consumers to experience the same with its tools that will help creators make 3D worlds.
So, the metaverse could turn out to be another massive growth driver for Nvidia in the long run in addition to the company's other catalysts. In all, Nvidia is a top growth stock to buy to take advantage of this emerging tech trend that could help it grow its earnings at a faster pace than Wall Street's estimated CAGR of 40% for the next five years.