The metaverse is supposed to be a groundbreaking concept that's going to change the way people interact with each other, connecting our virtual avatars in 3D virtual worlds from the comforts of our homes, offices, or anywhere with devices such as headsets or smartphones.
Third-party estimates forecast that the metaverse could become an $800 billion market by 2028. People are expected to use this platform for work, education, socializing, and even attending sports events and concerts. Not surprisingly, many tech giants are in the race to make the most of this potential revenue opportunity.
Nvidia (NVDA -1.93%) and Apple (AAPL 1.30%) are among the technology companies that could win big from the metaverse. Both stocks have been flying high in the past month, and it won't be surprising to see them soar higher in the future, thanks to the metaverse. Let's see why.
1. Nvidia
Nvidia's graphics cards and data center chips are going to play an important role in making the metaverse a reality. This is already evident from the usage of Nvidia's graphics cards in Meta Platforms' (META -1.79%) AI Research SuperCluster (RSC) supercomputer that's supposed to help build a foundational framework for handling metaverse workloads.
Meta had announced in January this year that it would be using 16,000 Nvidia GPUs (graphics processing units) to power this supercomputer. Additionally, Meta recently announced that it would be increasing the deployment of GPUs in data centers by fivefold this year to power its artificial intelligence (AI)-enabled content discovery engine, which could be a boon for Nvidia's graphics cards sales.
Nvidia's relationship with Meta could get stronger with time as the latter intends to spend aggressively, in the long run, to make the metaverse a reality. That's because the metaverse would require a massive bump in computing power. Chip giant Intel estimates that rolling out the metaverse successfully would require a thousand-times increase in computing capacity.
This is where Nvidia's GPUs come into play, thanks to their ability to handle heavy workloads. In simpler words, the metaverse will create the need for more data center accelerators such as GPUs. According to third-party estimates, the data center accelerator market could grow at an annual pace of 37% through 2026. Catalysts such as the metaverse could help this market sustain its impressive pace of growth, presenting a solid opportunity for Nvidia to expand its data center business in the long run.
Nvidia's data center revenue shot up 83% year over year in the first quarter of fiscal 2023 (for the three months ended on May 1, 2022) to a record $3.75 billion. The segment's impressive growth led to a 46% spike in its total revenue to $8.29 billion. The healthy prospect of the data center business is one of the reasons why analysts are expecting 23% annual earnings growth from Nvidia over the next five years.
However, the adoption of nascent technologies such as the metaverse could give Nvidia's data center segment an additional boost and help it grow at a faster pace.
2. Apple
Apple is a consumer electronics giant that's famous for its iPhones and iPads, and the metaverse could present the next frontier for the company to grow its devices business.
Reports suggest that Apple is developing a mixed reality headset that would support both augmented reality (AR) and virtual reality (VR) devices. The tech giant is expected to launch its first headset next year, followed by the release of an improved version in 2024.
This rumored move by Apple could open a whole new addressable market for Apple as AR/VR headsets are going to be the gateway to the metaverse for users, transporting them into virtual worlds where their virtual avatars could interact with others.
Not surprisingly, market research firm IDC estimates that sales of VR headsets could jump from an estimated 13.9 million units in 2022 to almost 35 million units in 2026. Meanwhile, the revenue from the AR wearables market is expected to hit $30 billion by 2030, according to data analytics firm GlobalData.
Apple's patent wins for its mixed-reality headsets indicate that the company could indeed be preparing to enter this market. So, don't be surprised to see the metaverse giving Apple's growth a nice shot in the arm in the future by making a significant contribution to its top line. Throw in other catalysts, such as Apple's dominant position in the 5G smartphone market and the growth of its services business, and investors have multiple reasons to buy this stock right now.
Apple stock has appreciated 17% in the past month, but it is still available at an attractive valuation. The price-to-earnings ratio of 27 is lower than last year's multiple of nearly 32. So, investors looking to buy a tech stock should take a closer look at Apple as the company looks capable of sustaining its bull run for a long time to come as catalysts such as the metaverse come into play.
