Invest now in the digital and emerging technology of the future, say fund managers with over USD 4 trillion assets under management, who at the start of 2022 recommended an increase to investment exposure in augmented reality and virtual reality technologies, also known as the metaverse.
“The next evolution of the internet is the digital realm of the future or the metaverse. If fully developed, it could one day allow people to interact, work, and play in immersive virtual spaces. And as major technology players embrace the idea – and, in some cases, peg the future of their business on it – it’s also creating opportunities for investors, namely in virtual reality and augmented reality”, Vijay Chandar, an investment strategist for wealth management at Morgan Stanley, told Bread.
The Metaverse is the future, with technologies going beyond gaming that enables innovation to create opportunities for investors today, with event promotors hosting virtual live music performances and museums offering virtual tours, more examples of a blend of the virtual and real worlds.
Outside of entertainment, VR/AR is being used actively in e-commerce. Some uses include customers’ ability to virtually try on clothes or check out an automobile before purchasing.
As these technologies evolve to create increasingly connected digital experiences, total spending worldwide is estimated to reach nearly USD 500 billion in 2025, from about USD 20 billion last year, according to asset managers.
“What about for businesses? In industries with heavy machinery or hazardous work environments, VR/AR is being used to train workers on machine operation and safety protocols. In health care, these technologies have been used in intensive care units during the pandemic to bring additional expertise into the room without risking exposure to the COVID-19 virus”, said Morgan Stanley’s Chandar.
“Another area ripe for increased VR/AR use is in, or rather out of, the office. Some companies host first-round interviews in automated digital formats. This method can help streamline the hiring process and expand capacity to interview a greater number of candidates,” he added.
However, a few fund managers were skeptical that a broader population would spend even longer in virtual worlds and be constantly comfortable with wearable devices.
While metaverse and the technology lack clarity in their current form, most fund managers said augmented reality and wearable hardware would replace the existing ecosystem of phones, laptops, tablets, desktops as our interface to content digitally.
“A couple of decades ago, no one expected people to spend time on their devices as they do now. It is the same with metaverse and related hardware. The demand for certain metaverse-related products has been immense and is expected to only increase in this ever-changing world”, said an asset manager of a large global technology fund.
Companies are also betting big on demand for hardware for these technologies underpinning the new virtual world or the Web 3.0, such as headsets, sensors, chips, cameras, etc.
Football club Manchester City and Sony joined forces last year to develop a virtual Etihad Stadium so that fans worldwide could watch the games live, digitally.
Apple recently hired an AI executive from Meta Platforms. The company’s USD 3 trillion market valuation is likely fuelled by speculation that it was close to unveiling a revolutionary headset this year.
Samsung has already said metaverse is the future and recently showcased at a consumer electronics show how anyone can decorate their homes virtually using its products.
Nvidia made free versions of its Omniverse, a remote collaboration platform is designed to connect virtual worlds, available to individual creators and artists worldwide.
Adobe is considered a major winner from the build-out of the metaverse, while Disney patented an augmented virtual world simulator, which does not need a headset or glasses.
“The process and money being spent by tech giants would ultimately require more processors, vastly more computing power, and wearable devices that would drive a wave of hardware demand comparable to the early years of smartphones”, said Simon Powell, head of Global Thematic Research at Jefferies.
“The producers of these components such as semiconductors, servers, sensors, cameras, and displays stand to benefit. Think back to the early days of the mass-market internet investment gold rush. The best bets in those first stages were on the hardware – the picks and shovels”, he added.
But for the metaverse to be successful and get new users is going to take a while longer, as noticed by the dismal viewership for a slate of virtual concerts in Meta, formerly known as Facebook, in December and the new year, which included big names like rapper Young Thug, DJ David Guetta, and EDM duo The Chainsmokers.
While Beijing-based Baidu held its annual developers’ event in the virtual world of its metaverse app, XiRang, the executive in charge of XiRang, downplayed expectations and said many aspects weren’t yet up to par.
Still, these nascent shortcomings will be short-lived, making investing in Web 3.0 attractive to dive into right now, according to fund managers.
“Ultimately, the success of VR and AR technologies, and indeed the realisation of the metaverse, will depend on technology advancement and user acceptance. On the tech front, there are several challenges. Seamless virtual experiences currently require expensive hardware, whether a dedicated device, like today’s headset, or even clothing or cameras that can capture movement, with complex processing capabilities and enough power to support a virtual environment”, said Morgan Stanley’s Chandar.
“In addition, huge amounts of data need to be transmitted wirelessly and stored, and users will need to be able to connect from anywhere, so expanding coverage of ultra-high-speed internet will be a prerequisite,” he added.
Here are a few sectors to consider by Morgan Stanley in a note titled “Investing in the Metaverse: New Opportunities in Virtual Worlds.”
In 2020, COVID-induced lockdowns resulted in an acceleration of gamer adoption – about four years’ worth in terms of player bases, time spent playing, and in-game revenue growth. Add to this, games becoming the social media venue of choice for many individuals, and platforms offering online multiplayer experiences, and the lines across gaming, entertainment, social media, and the virtual environment begin to blur. Game developers and publishers are unlikely to squander what may be an opportunity to bridge into other forms of connectivity and keep their in-game content and experiences fresh.
Many tech companies are developing products that allow users to interact in these virtual worlds. Think VR headsets and AR filters that can be overlaid with a smartphone camera, plus operating systems for increasingly connected PCs. Communications and streaming platforms could also fuel the transition by offering content in a virtual world rather than on a screen.
Several tangential technologies and trends also could benefit from continued VR/AR adoption. One of them is cybersecurity. A more digitally connected world will likely lead to more vulnerabilities for cyber threats, and the growing risk could mean opportunities for companies providing cybersecurity solutions. Increased digitalisation will also require high-speed wireless connectivity powered by 5G, meaning opportunities to invest in 5G mobile connectivity and digital infrastructure.
While the debate on consumer acceptance remains, fund managers suggested investing in these emerging technologies, and the broader trend toward the metaverse would be a value bet.
The building excitement around the metaverse represents an opportunity, and therefore it provides an ideal platform to be the early adopters.