The metaverse continues to be a hot topic among the media and investors, but it's hard to define what exactly the metaverse is and who is leading the market.
What I think we know is that the metaverse will involve the embodiment of people in 3D, rather than a 2D video, and will involve meeting people in a digital space. With those guardrails in mind, I think the top metaverse stocks today are Unity Technologies (U -1.06%), Autodesk (ADSK 0.65%), and Microsoft (MSFT -2.45%).
Image source: Getty Images.
The game engine for the metaverse
Unity has become the game engine of choice for smartphone and VR apps, and I think that gives it a leg up in building the metaverse. To be clear, Unity isn't building the metaverse itself; the company is building the programming tools, game engine, 3D-asset marketplace, and advertising infrastructure that will allow developers to build metaverse programs.
The upside for Unity is that it has a subscription model for creators. The company doesn't need any given project to succeed as long as builders are building with Unity.
The one downside of Unity is the company's reliance on market growth overall. If the metaverse doesn't attract users and developers, Unity won't see the upside, but if you're bullish on the metaverse, then Unity is a great way to invest in that growth.
Creation tools galore
What the metaverse may have in common with today's creation tools is that it needs architecture and 3D-media tools to be built out. Unity may be used to create the game, but assets for the game -- like buildings, furniture, and any digital asset you can think of -- will likely be made with an Autodesk tool.
Maya is a popular tool with 3D designers, and 3ds Max is a software tool that's widely used as well. On top of that, typical architecture tools like AutoCAD can be used to build metaverse assets.
Autodesk has more exposure to the creative side of the metaverse than you might think, and it has decades of building out creation tools for digital assets.
Microsoft is already in the metaverse
Depending on how you view the metaverse, Microsoft may already be a leader. The company's Microsoft Teams product is popular among enterprises and starting to plug into virtual and augmented-reality headsets like the Hololens and Microsoft's XR platform. This could be a play for the social aspect of the metaverse, as well as a hardware platform.
Microsoft is also a leader in cloud services, which developers will use to power their metaverse projects. This is the infrastructure side of the metaverse, which most companies will lean on a company like Microsoft for.
Given Microsoft's size, the metaverse isn't going to move the needle for Microsoft in the next few years, but if it continues to be a go-to for meetings, cloud infrastructure, and hardware, this could be a big upside for the company long term.
The metaverse is still an unknown
Each of these companies has a solid business outside the metaverse, and I think that's key for investors. We don't know what the metaverse will look like, and until we do, I think it's best to own companies where the metaverse is an option for growth, not the core investment thesis.
