The metaverse is a hot tech trend currently in its early stages of development, but is expected to become huge in the long run thanks to its ability to connect people scattered all over the world in virtual 3D worlds.
In simpler words, people can work, play, learn and socialize within the metaverse from the comfort of their homes with the help of mixed reality devices that support both augmented and virtual reality. Not surprisingly, investments in this field are expected to grow rapidly in the coming years. Third-party estimates predict that the metaverse market could grow at an annual rate of approximately 48% through 2029, reaching a size of just over $1.5 trillion at the end of the forecast period.
nvidia (NVDA 5.26%) And Microsoft (MSFT 1.88%) Two companies that can help investors make significant gains from this trend. Let’s see why the metaverse could send stocks of these tech giants into an upward race.
Nvidia is taking advantage of the metaverse in multiple ways. Indeed, the graphics specialist is already reaping the benefits of this emerging technology trend through strength ID pads” (FB 1.29%) A supercomputer that is supposed to help support the growth of the metaverse. The Meta Research Artificial Intelligence (AI) SuperCluster (RSC) supercomputer is powered by just over 6000 Nvidia graphics processing units (GPUs). The supercomputer will eventually be powered by 16,000 Nvidia GPUs once Meta completes the expansion of the same hardware.
Meta believes that “the work done with RSC will pave the way towards building technologies for the next major computing platform – the metaverse, where AI-enabled applications and products will play an important role.” This means that demand for Nvidia’s GPUs should ideally thrive in the long run as data centers, servers, and supercomputers will have to be upgraded to handle the real-time delivery of 3D content to millions of users around the world.
However, this isn’t Nvidia’s only opportunity in the metaverse. The company estimates that, along with chips, the metaverse will also create strong demand for enterprise software. According to Nvidia, the hardware and software opportunity together represents a $300 billion addressable market.
Now, we’ve seen how Nvidia tends to take advantage of the hardware side of things from the metaverse. The good part is that its software opportunity is emerging as well. Known as Omniverse, Nvidia already has a scalable development platform that allows creators and developers to create virtual worlds, especially digital twins – virtual replicas of physical objects and spaces in the real world.
Furthermore, Nvidia claims that more than 400 companies have evaluated the adoption of its Omniverse system. Auto giant BMW He took advantage of the Omniverse to create a digital twin of a factory, while Ericsson The platform is used to simulate and visualize 5G wireless networks prior to their launch.
All of this suggests that Nvidia’s business could get a good chance in the arm thanks to the metaverse, and that could play a big part in boosting the company’s already excellent pace of growth. Nvidia finished its fiscal year 2022 (which ended Jan. 30) with a 61% year-over-year increase in revenue to $26.9 billion, and the metaverse opportunity says it’s scratching the surface of a massive opportunity.
Analysts expect Nvidia to report 30% annual earnings growth for the next five years, and adding opportunities like the metaverse could help it grow at a faster pace and increase inventory in the long run.
Microsoft is another tech giant on its way to winning from the metaverse in multiple ways, including in the lucrative video game space.
Earlier this year, Microsoft announced that it would acquire Activision Blizzard In a deal valued at $68.7 billion. Announcing the acquisition, a Microsoft press release said that “the acquisition will accelerate growth in Microsoft’s gaming business across mobile, PC, console and cloud, and will provide the building blocks for the metaverse.” It’s worth noting that Microsoft already has a solid base in the gaming space thanks to its Xbox consoles, Game Pass subscription service, and a large library of game titles, thanks to its ownership of several game studios.
This puts Microsoft in a strong position to take advantage of the metaverse gaming opportunity, which is expected to grow at an impressive pace. Crypto asset management firm Grayscale estimates that virtual gaming worlds could generate $400 billion in revenue by 2025 compared to $180 billion in 2020. Almost all virtual gaming revenue will be generated from in-game spending, so Activision’s 400 user base Millions will give Microsoft access to a large group of gamers with which they can pay additional spending to boost the growth of its gaming business in the metaverse.
Besides games, Microsoft has already dived into the metaverse with Mesh for Microsoft Teams. Built on top of the popular Microsoft Teams collaboration tool, this product will allow people in different locations to attend meetings in immersive 3D spaces through their virtual avatars. Microsoft Teams has a user base of more than 250 million users, so the company can sell its metaverse collaboration tool to a large audience.
Meanwhile, Microsoft is also planning to tap into the metaverse in the industrial sector as well, as it plans to tap into the growing demand for digital twins. This might be a smart move from Microsoft, given that the digital twin market is expected to generate $61 billion in revenue by 2027 compared to $10 billion last year, according to Mordor Intelligence.
Consider the company’s prospects in other lucrative markets such as cloud computing and video games, and it wouldn’t be surprising to see Microsoft maintain its impressive growth over the long term. The company’s revenue rose 18% year-over-year in the third quarter of fiscal year 2022 (ended March 31) to $49.4 billion, while adjusted earnings rose 14%.
Analysts expect Microsoft’s earnings to post an annual growth rate of 16% for the next five years, but don’t be surprised to see it do even better, thanks to profitable growth drivers like the metaverse. That’s why buying Microsoft stock seems like a no-brainer right now, trading at 26 times consecutive dividends, a discount to the five-year average multiplier of 37.