The metaverse has drawn the attention of users and investors alike, and for good reason. Fortune Business Insights forecasts a compound annual growth rate for the metaverse at 48% through 2029.
Moreover, companies involved in areas as diverse as semiconductors, software, and social media will play a role in this virtual world. Metaverse stocks Meta Platforms (META 2.33%), Qualcomm (QCOM 0.91%), and Alphabet (GOOG 0.87%) (GOOGL 0.75%) stand out for offering both potential and financial safety amid an uncertain market.
Meta Platforms
Nothing says embracing the metaverse like changing your name to Meta. To this end, the company formerly known as Facebook hopes to continue its pattern of significant revenue growth in the metaverse.
NASDAQ: META
Key Data Points
Some change was necessary. Meta claims that it has 3.7 billion monthly active users (which it calls family daily active people) on its platform, which includes Facebook, Messenger, Instagram, and WhatsApp. By that measurement, Meta's platform includes nearly half of the global 7.9 billion population. With a footprint already covering much of the world, Meta has decided to seek growth by leveraging its social media dominance in the metaverse.
It bought Oculus to become the No. 1 producer of virtual reality headsets, according to IDC. This will probably make Meta an indispensable part of the metaverse experience. It has also invested heavily in Reality Labs with the intention of creating unique metaverse experiences.
Still, these investments have weighed heavily on the company at a time when ad spending has slowed. In the first two quarters of 2022, revenue of $57 billion grew by only 3% compared with the same time frame in 2021. This is significant, considering that 2021 revenue growth was 37%. Also, its $13 billion in free cash flow so far this year lagged the $16 billion in free cash flow at the same point last year.
That slowdown has led to a drop of almost 60% in the stock price over the last year, leading some to question whether it is a value play or value trap. Nonetheless, that move has taken the P/E ratio to 12.5, the lowest earnings multiple among FAANG stocks.
Moreover, Meta's $40 billion in liquidity still leaves the company in solid shape. This cash position and its valuation should limit the downside as it seeks to revive its brand in the metaverse.
Qualcomm
Consumers and investors likely know Qualcomm best for its smartphone chipsets and role in the 5G upgrade cycle. But despite this strength, Qualcomm is diversifying away from the smartphone, and some critical partnerships with Meta Platforms are driving this strategy.
NASDAQ: QCOM
Key Data Points
Qualcomm provides the chips that power Meta's Oculus VR headsets. Both companies took this relationship a step further when they signed a multiyear agreement to deliver premium metaverse experiences via Qualcomm's Snapdragon chips and the Meta Quest platform.
The company also allocated $100 million to a Snapdragon Metaverse fund that will collaborate with developers and companies to foster immersive augmented-, virtual-, and mixed-reality experiences. While the potential benefits of such a fund are unknowable, that move will probably help expand Qualcomm's metaverse presence.
Amid these changes, Qualcomm continues to grow as it generated $33 billion in revenue in the first nine months of fiscal 2022. This increased 35% compared with the same period last year.
Qualcomm's stock suffered as the company forecasted a revenue slowdown for next year. But even with the recent decline, its stock performance closely approximates the S&P 500 returns over the last 12 months. Its 11 P/E ratio is much lower than every major chip company except Intel, which trades at 7 times earnings.
However, a 5G upgrade cycle and metaverse potential have given Qualcomm a much faster rate of revenue growth than Intel, a factor that arguably justifies a slightly higher valuation. As Qualcomm goes deeper into the metaverse, it could offer a long-overdue boost to the company.
Alphabet
The metaverse is merely the latest manifestation of the Google parent's mission to organize information while making it accessible and applicable.
NASDAQ: GOOG
Key Data Points
The metaverse will serve as an extension of this mission. It began innovating early through Google Glass, its augmented reality glasses. Though Google Glass failed to take off, the company has utilized AR through Google Lens and its AR developer platform. It has also developed VR products for YouTube and Google Earth.
Given Alphabet's $125 billion cash hoard, it can actively compete in this industry regardless of the current market. Such a benefit bodes well as the market has become more uncertain.
During the first half of the year, Alphabet generated $138 billion in revenue in this environment, 17% more than in the same period last year. This includes 39% growth for Google Cloud, which accounted for $12 billion of that revenue.
Also, its 20 P/E ratio makes it a relative bargain compared to other mega tech stocks like Apple at 25.5 times earnings, or Unity Software, which will likely not earn a profit in the foreseeable future. Such a financial condition bodes well when considering Alphabet's potential for the metaverse and many other areas of tech.
