The metaverse is a contemporary technology movement that is still in its early phases of development, but it is predicted to become enormous in the future due on its capacity to link people all over the world in 3D virtual worlds.
People may learn, work, play and socialize in the metaverse from their homes using mixed reality devices that support both virtual reality and augmented reality. Not surprisingly, investments in this area are anticipated to rise dramatically in the coming years. The metaverse market is expected to develop at an annual rate of around 48% through 2029 and reach a size of just over $1.5 trillion near end of the forecast period, according to a third-party forecast.
The rise of the metaverse might see these tech giants gain a significant boost. Here’s why Nvidia (NVDA 5.29%) and Microsoft (MSFT 2.03%) could benefit investors handsomely from this trend. Let’s look at why the metaverse may cause these IT companies’ stock prices to go up significantly.
In numerous ways, Nvidia may benefit from the metaverse. Even before it has fully taken hold, Nvidia is already enjoying the benefits of this developing technology trend, as it powers Meta Platforms’ (FB 1.29%) supercomputer intended to aid in the expansion of the metaverse. The Meta AI Research SuperCluster (RSC) computer is powered by over 6,000 Nvidia GPUs. When Meta finishes adding more GPU capacity to its existing supercomputer, it will be powered by about 16,000 Nvidia GPUs.
The potential of artificial intelligence (AI) applications is limitless, according to Meta. “The work done with RSC will lay the groundwork for future technologies for the next big computing platform, which is the metaverse, where AI-driven apps and items will play a significant role,” says Meta. This implies that demand for Nvidia GPUs should grow in the long run as servers, data centers, and supercomputers will have to be modernized to serve real-time 3D content delivery for millions of users across the world.
More than 400 firms, according to Nvidia, have tested the Omniverse platform. BMW has used the Omniverse to make a digital twin factory, while Ericsson is using it to test and visualize 5G wireless networks before releasing them.
This implies that Nvidia’s business could get a significant boost as a result of the metaverse, which is likely to have an impact on the firm’s already rapid growth. Nvidia ended fiscal year 2022 (which ended January 30) with a 61% year-over-year boost in revenue of $26.9 billion, and the potential for the metaverse suggests that it is just beginning to explore a huge market opportunity.
Analysts forecast Nvidia to grow earnings at a compound annual rate of 30% over the next five years, and the metaverse may help it accelerate its growth rate and supercharge the stock in the long term.
Another technology giant, Microsoft, is also on track to profit from the metaverse in a variety of ways, including the lucrative video gaming market.
Microsoft is reportedly close to closing a deal to acquire Activision Blizzard, which it values at $60 billion. Microsoft’s press release when the acquisition was announced stated that the “acquisition will help Microsoft accelerate growth in its gaming business across PC, mobile, console, and cloud,” as well as providing building blocks for the metaverse. It is also worth noting that Microsoft already has a strong foothold in the gaming industry thanks to its Game Pass subscription service, Xbox consoles, and a large collection of games thanks to its ownership of numerous gaming studios.
Microsoft’s ability to benefit from the metaverse gaming industry opportunity, which is expected to develop at a rapid rate, puts it in a strong position. Grayscale, a cryptocurrency asset management firm, forecasts that virtual world economies may be worth $400 billion by 2025 as opposed to $180 billion by 2020. Almost all of the virtual game revenue will come from in-game spending, so Activision’s 400 million users will provide Microsoft access to a big population of gamers from whom it can drive incremental spending to fuel its gaming business in the metaverse.
Microsoft has already established its presence in the metaverse with Mesh for Microsoft Teams, which is a collaboration tool that links people together via their virtual avatars. This product, which is based on the popular Microsoft Teams communications software, will allow individuals across the world to participate in meetings in realistic 3D environments through their virtual representations. With over 250 million users, Microsoft may cross-sell its metaverse communication platform to a massive audience.
Analysts forecast Microsoft’s earnings to grow at a pace of 16% per year for the next five years, but don’t be surprised if it outperforms that number, thanks to lucrative growth drivers like the metaverse. That is why buying Microsoft stock appears to be a no-brainer, as it trades at a P/E ratio of 26, below its five-year average of 37.