Enter the metaverse

Are your clients ready for the metaverse—a digital universe where virtually anything is possible?

Meta Platforms jumpstarted the conversation about the possibilities of the metaverse when it rebranded from Facebook late last year and announced plans to invest $10 billion to build out its metaverse division. In January 2022, Microsoft purchased Activision Blizzard for $69 billion, saying the acquisition was a part of its "building blocks for the metaverse." Alphabet, Apple, Nvidia, and other big tech companies are years into developing technology built for the metaverse. Clearly, there is momentum behind this emerging disruptive theme.

So, what exactly is the metaverse, and what opportunities might it offer?

Enter the metaverse

Many tech prognosticators think the metaverse is the next evolution of the internet—a 3D model of the internet. It has also been characterized as Internet 3.0 (with Internet 1.0 being the early desktop iteration in the 1990s and Internet 2.0 being the mobile/social networking revolution in the 2000s).

Components of the metaverse already exist—think virtual reality, social networking, and online gaming, to name a few. The metaverse can generally be thought of as combining all these experiences and more, in a deeper, immersive virtual reality, with a seemingly infinite number of users synchronously and persistently interacting.

Metaverse investing

Much of Wall Street has quickly become bullish on the metaverse, and investors are taking notice of its disruptive potential.

Citi recently estimated that the metaverse economy could reach $8 trillion to $13 trillion by 2030.¹ Goldman Sachs pegged the metaverse at having a potential value of $12.5 trillion. Seeking this potential, investors have sought out metaverse opportunities. After Facebook's rebranding to Meta in October 2021, metaverse ETF assets more than quadrupled the next month and have continued to grow (see Growth of metaverse ETF assets chart).

Riding the rebound

Metaverse ETF holdings are primarily concentrated in the communication services and information technology sectors, and a host of industries and businesses in these sectors will be crucial to building out the metaverse. These include:

• Gaming technology and software. The metaverse will need an expansive ecosystem of digital gaming options to provide increasingly immersive experiences.
• Smartphone and wearable tech. Smartphones, fitness bands, watches, earbuds, and glasses will be the connection points between the physical world and metaverse.
• Digital infrastructure. High-capacity IT infrastructure, such as data centers (and edge data centers), will be crucial.
• Web development and content services. Platforms or tools for cross-platform development are needed to enable real-time communications, web development, and online media streaming to evolve the internet.
• Design and engineering software. 3D computer-aided design, mapping information systems, and multimedia design software will be needed to construct virtual realities.
• Computing hardware and components. Multimedia, general analog, and mixed signal semiconductors are needed to produce technologies that expand computing power to create immersive virtual reality experiences.

Investing implications

Could the metaverse join the growing list of disruptors that have fundamentally altered both our way of life as well as the investing landscape?

Of course, most or all of the investing risks associated with other categories of stocks exist for disruptive opportunities like those linked to the metaverse. Advisors should do their due diligence on any individual stock, fund, or other investment to fully understand its characteristics and risks. Disruptive investments may also carry some unique characteristics to evaluate. For example, in some cases disruptors may exhibit higher than average levels of volatility, as your clients may have differing opinions on the near-term prospects for these industry-changing companies. Also, the forecasts made by Wall Street hinge on widespread adoption of the metaverse, which is uncertain.

With that said, if it aligns with your clients strategy and objectives, the metaverse could provide opportunities with the potential to change our reality.