The metaverse is one of the hottest trends in technology right now, and it has Wall Street excited -- which isn't surprising, as major tech names such as Meta Platforms, Nvidia, Intel (INTC -9.85%), Microsoft, and many others are invested in this concept.
Goldman Sachs analysts say they think that the metaverse is the next paradigm shift in the way people use the internet. The investment bank forecasts that this technology could see investments between $135 billion and $1.35 trillion over the next three years. As a result, there are several investment opportunities for investors looking to benefit from the growth of the metaverse.
ASML Holding (ASML 1.90%) could be one of the biggest winners of the metaverse. Let's see why.
Image source: Getty Images.
The metaverse will be powered by advanced chips
Firing up the metaverse will require a lot of semiconductors. Be it gaming consoles, smartphones, virtual reality devices, computers, or data centers, every metaverse component will rely on chips to function efficiently. Intel executive Raja Koduri, for instance, points out that powering the metaverse would require a "1,000-times increase in computational efficiency."
Meanwhile, analysts at financial services firm Morningstar say that the metaverse will require a lot of chips made using advanced processing nodes. That's because many of the metaverse tasks will require real-time processing of large amounts of data that will have to be delivered to users at scale. The firm adds that Taiwan Semiconductor Manufacturing (TSM 0.88%) (TSMC), Intel, and Samsung are the three foundries that can produce these chips.
All three semiconductor foundries mentioned above rely on ASML's machines to produce chips, and they seem to be placing more and more orders from the Dutch chip-making giant. That's because ASML is the only company that makes the extreme ultraviolet (EUV) lithography machines that are used to make chips based on advanced process nodes.
Not surprisingly, chipmakers are in a race to place orders for advanced ASML machinery that will help them make smaller, more powerful, and power-efficient chips. Intel recently placed an order for an ASML prototype machine that's not even in commercial production and is likely to cost upwards of $300 million for a single unit. ASML says that it has already scored five orders for its next-generation machine, and Intel has gone a step ahead by placing an order for a product that's still in the design phase.
TSMC, on the other hand, has ramped up its 2022 capital spending forecast to a range of $40 billion to $44 billion -- a 40% increase over 2021's outlay of $30 billion at the midpoint. The semiconductor giant is expected to spend 70% to 80% of its 2022 capex on building advanced process nodes that will help it manufacture 3-nanometer (nm) and 2nm chips.
ASML is benefiting big time from the aggressive spending by semiconductor foundries already.
ASML is built for terrific growth
ASML's order book has been expanding at a terrific pace. The company released its results for the fourth quarter of 2021 on Jan. 19, and it revealed that it was sitting on 26.2 billion euros worth of net bookings at the end of the year -- a huge jump over 11.3 billion euros worth of bookings it had at the end of the year-ago period.
It is worth noting that ASML's net bookings, which represent "all system sales orders for which written authorizations have been accepted," are significantly higher than the company's 2021 revenue of 18.6 billion euros. So it wouldn't be surprising to see ASML's revenue grow at a faster pace in 2022 compared to its guidance of 20% growth, which would put its annual revenue at 22.3 billion euros.
Analysts have raised ASML's revenue growth forecast given its robust pipeline and the expected growth in chip demand, which will encourage its clients to buy more of its machines.
ASML Revenue Estimates for Current Fiscal Year data by YCharts
What's more, the company's earnings are expected to increase at an annual rate of 30% for the next five years. So investors looking to buy a growth stock to take advantage of the metaverse should take a closer look at ASML Holding, as it would play a key role in powering this hot tech trend. And with the stock down 19% in 2022 and trading at 40 times trailing earnings compared to last year's average earnings multiple of 53, now may be a good time to buy this potential metaverse winner.
