The metaverse is being touted as the next evolution of the internet, or Web 3.0. It represents a convergence of virtual reality, social media, and gaming technology that creates a 3D version of the internet, and, according to Bloomberg Intelligence, it's an opportunity estimated to be worth nearly $800 billion.
Investors looking for good metaverse stocks should consider leaders in the basic technologies (e.g., virtual reality, social media, and gaming) that are needed to bring the metaverse to life. That's why Alphabet (GOOG -0.45%) (GOOGL -0.51%), Take-Two Interactive (TTWO -0.23%), and Facebook parent Meta Platforms (META -0.71%) are three great candidates to consider right now.
Investors don't have to chase risky, oddball tech stocks to make good returns. Think of the metaverse as the next leg of growth for leading tech companies that possess the essential assets that will be needed for all this to work. If the metaverse is a 3D version of the internet, it's hard to think of a company better positioned to capitalize than Alphabet's Google, which has served as the gateway to the internet for the last few decades.
Alphabet has a war chest of $139 billion in cash to fund investments. One key technology it has been investing in for years is augmented reality, which is featured in Google Maps, but its interests in metaverse technologies run deeper.
CEO Sundar Pichai said during the fourth-quarter earnings call that blockchain is one area of interest for Alphabet. The blockchain is a system of computer networks that validate all transactions made in the digital economy, which is already flourishing. "On Web3, we are definitely looking at blockchain," Pichai said. "Just [as] one example, our Cloud team is looking at how they can support our customers' needs in building, transacting, storing value, and deploying new products on blockchain-based platforms. So, we'll definitely be watching the space closely and supporting it where we can."
Alphabet holds the keys to the internet, and it is investing billions to protect that competitive advantage as the metaverse arrives. It is a relatively low-risk way to invest behind this opportunity.
2. Take-Two Interactive
Investors should also consider a top video game stock. These companies employ thousands of people to do one thing: create immersive, digital environments that gamers want to spend time in. Video game designers possess the specific skill set required to build these persistent, 3D virtual worlds.
Over the last five years, Take-Two's headcount has more than doubled to 5,046, and it continues to invest in top programming talent as the $233 billion video game industry continues to expand.
Take-Two's Grand Theft Auto franchise looks like a rudimentary version of what the metaverse could be on the digital entertainment side. It has sold 160 million copies to date. The game remains popular for its online multiplayer feature that operates as an open-world sandbox. Players complete in-game tasks to collect rewards while chatting with friends, and they spend quite a bit of money on in-game items while having fun. Take-Two's recurrent consumer spending, or in-game revenue, more than tripled to $2.3 billion from fiscal 2017 through fiscal 2021 ending in March.
Highlighting the opportunity for Take-Two, Meta Platforms recently announced that Take-Two's Rockstar Games studio is updating Grand Theft Auto: San Andreas to run on Oculus' Quest 2 virtual reality hardware.
There is attractive long-term upside for a top game maker like Take-Two. This top gaming property that already serves as a persistent, shared world should become much more valuable and fuel returns for Take-Two shareholders.
3. Meta Platforms
Meta's acquisition of Oculus in 2014 and its recent decision to split its reporting segments into a family of apps and reality labs (the metaverse) makes the social media leader a no-brainer tech stock to consider here.
In 2021, the reality labs segment posted a massive operating loss of $10.2 billion against just $2.2 billion of revenue. While that may not sound like a good reason to buy the stock, the loss hitting the bottom line shows CEO Mark Zuckerberg's commitment, not to mention Meta's financial ability, to invest in this burgeoning opportunity.
With the exception of Nvidia CEO Jensen Huang, there is probably no bigger advocate of the metaverse in the corporate world right now than Zuckerberg. During the Q4 earnings call, he said, "We're focused on the foundational hardware and software that are required to build an immersive, embodied internet that enables better digital social experiences than anything that exists today."
Meta is already launching Meta Avatar software development toolkits for Unity Software developers on Quest and Oculus Rift virtual reality hardware. Its recent partnership with the NFL to let users customize their avatar with digitally licensed clothing shows how Meta is positioning itself to be a key distribution channel in the metaverse for digital goods, similar to how Facebook and Instagram are already serving as a key channel for brands to advertise to billions of users across these platforms. The metaverse is another extension of how Meta will continue to monetize its various social media apps.
Meta Platforms is a great metaverse stock, considering its 2.8 billion daily active users across its family of apps and its ability to absorb billions of losses early on to capture a huge slice of an $800 billion opportunity.