Neal Stephenson coined the term "metaverse" in his novel Snow Crash three decades ago, but it reemerged as a hot buzzword over the past year as virtual reality, augmented reality, and digital asset platforms blended together and blurred the barriers between the physical and digital worlds.

That global metaverse market could grow at a compound annual growth rate (CAGR) of 39.1% between 2022 and 2030, according to Report Ocean. However, there's a lot of hype and noise in this booming market, and it can be tough for investors to separate the losers from the potential winners.

Two people explore a VR environment.

Image source: Getty Images.

Today I'll review three promising metaverse stocks -- Meta Platforms (META 2.48%), Unity Software (U -1.40%), and Roblox (RBLX 3.56%) -- and explain why they could still be compelling investments in this challenging environment for higher-growth tech stocks.

1. Meta Platforms

Last October, Facebook rebranded itself as Meta Platforms to showcase its long-term focus on the metaverse market. That strategy is rooted in its Reality Labs segment, which generated $2.3 billion in revenue in 2021 by mainly selling virtual reality headsets, VR software, and smart glasses.

The Reality Labs segment only accounted for 2% of Meta's top line and racked up a whopping $10.2 billion in operating losses last year, but it's gradually growing. Meta reportedly shipped about 10 million Quest 2 headsets in 2021, and its VR playground Horizon Worlds hit 300,000 users earlier this year. It's also taking a near-50% cut of all virtual assets sales on that platform.

Meta's metaverse business is still tiny compared to the 3.64 billion people who access at least one of the apps (Facebook, Messenger, Instagram, and WhatsApp) each month. It will also likely continue to burn cash as Meta concentrates on selling cheap headsets to lock in more users.

But over the long term, Horizon Worlds could continue expanding as Meta launches more devices and metaverse experiences. That transformation could reduce the company's dependence on targeted ads.

Meta's stock has already lost about a third of its value this year and trades at just 16 times forward earnings. That low valuation reflects the near-term challenges for its advertising business, but investors who have faith in its vision for the metaverse should consider accumulating some shares today.

2. Unity Software

Unity Software's stock was cut in half this year as investors retreated from pricier growth stocks. The stock might still seem a bit pricey at 14 times this year's sales, but I believe Unity is a solid metaverse buy for three reasons.

First, Unity's game engine powers more than half of all the mobile, console, and PC games in the world. Developers use Unity because it bundles together various tools for creating graphics, sound effects, integrated ads, and multiplayer features in an easy-to-use package. Games created with Unity can also be run across multiple gaming platforms without being rewritten.

Popular VR games, including Meta's Beat Saber, already run on Unity. Therefore, Unity should benefit from the long-term growth of the traditional gaming market as well as the expansion of the metaverse gaming market.

Second, Unity has a clear vision of the future. It expects to generate more than 30% annual revenue growth "over the long term" and break even on a non-generally accepted accounting principles (non-GAAP) basis in 2023.

Lastly, the company expects to grow its ecosystem beyond the gaming market. It's already used to develop non-gaming 3D graphics for VR education and training, autonomous driving applications, and industrial automation technologies, and it recently gained a foothold in the theatrical special effects market by acquiring Peter Jackson's Weta Digital (which produced the special effects for Lord of the Rings and Game of Thrones) last December.

All these strengths arguably justify Unity's higher valuation and make it a solid long-term investment on the growing metaverse market.

3. Roblox

Roblox became a household name during the pandemic as millions of cooped-up kids built, shared, and monetized simple games on its platform. Its popularity skyrocketed because its block-based system was easy to use, it didn't require any coding knowledge, and it was a creator-driven platform like Alphabet's YouTube that didn't rely on professional developers.

Roblox's growth decelerated in a post-lockdown market as more children returned to school, but it still ended 2021 with 49.5 million daily active users (DAUs), representing 33% growth from a year ago. It also continues to gain older users (over the age of 13) and expand overseas.

Roblox's popularity made it a fertile platform for big brands like Nike, Kering's Gucci, and Sony Music to sow their own metaverse seeds. Nike built a virtual showroom called Nikeland, Gucci launched "Gucci Garden" theme rooms to showcase its products, and Sony Music launched metaverse concerts for its recording artists. If other brands follow suit, Roblox's platform could evolve into a virtual shopping mall where users can spend their Robux in-game currency.

Roblox's stock lost about two-thirds of its value this year as investors fretted over its slowing growth and widening losses. But after that meltdown, it trades at just seven times this year's sales. If Roblox stabilizes its business and continues to gain more DAUs and brand partners, its stock could rebound and become a leading metaverse play once again.