What Are Metaverse Stocks and Should You Invest in Them?
What Are Metaverse Stocks and Should You Invest in Them? Skip to content
You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
Get Priority Access Metaverse stocks represent the companies making this virtual universe possible. Because there are so many moving parts that make the metaverse work, the term applies to stocks across a wide range of categories within tech.
Although a few small-cap and penny stocks make it to become some of the world’s largest companies, it’s also common for smaller companies — which lack the financial or innovative capabilities to keep up with the big dogs — to fail, resulting in significant losses for investors. Considering this, if you decide to invest in metaverse stocks, it’s important to avoid the noise of small companies popping up everywhere with big promises and high hopes. Instead, focus on the large, established companies that are likely to take dominant roles in the industry.
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By Joshua Rodriguez Date March 10, 2022FEATURED PROMOTION
Most people have only begun to hear the term metaverse recently, but it’s an important concept considering the implications it can have on the future. Smart contracts, digital art, and ownership of your digital world could become how we prove ownership, enjoy and preserve history, and much more. With many investors and entrepreneurs holding the belief that the metaverse has the potential to change life as we know it, the concept has already grown to be a nearly $50 billion per year market, according to Emergen Research, and it’s expected to continue on a dramatic upward trajectory. When an industry becomes such a valuable one, opportunities arise in the stock market. An entirely new category of metaverse stocks is beginning to emerge, but what exactly are they, and are they worth your investment dollars?What Are Metaverse Stocks
The metaverse is a virtual world that’s the result of a mix of social media, verifiable digital ownership, and hardware like virtual and augmented reality equipment that allows the end user to enter the digital stage.You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
Get Priority Access Metaverse stocks represent the companies making this virtual universe possible. Because there are so many moving parts that make the metaverse work, the term applies to stocks across a wide range of categories within tech.
Types of Metaverse Stocks
Wall Street defines metaverse stocks as tech stocks in the following categories:Virtual Reality VR Companies
VR headsets, software, and other equipment make it possible for the end user to connect to the digital world in a way that wasn’t imaginable just a few decades ago. The companies at the cutting edge of this industry are integral to the continued growth of the metaverse as we know it. For example, Meta Platforms (Nasdaq: FB) — parent company of the social media giant Facebook — is also the developer and manufacturer of the Oculus, a popular virtual reality headset. Meta founder and CEO Mark Zuckerberg has said that the future of the company would be in the metaverse, connecting consumers by mixing virtual and augmented reality with social media.Software Companies & Video Game Companies
Software companies like Microsoft (Nasdaq: MSFT) are also key players in the industry. Microsoft operates the popular open-source game Minecraft, which allows users to build their own digital worlds. This open-source technology has become the basic building blocks for many pieces of the metaverse, like the explorable virtual world NFT Worlds that consists of virtual lands with blockchain-verified ownership for virtual real estate. The online game platform Roblox (NYSE: RBLX) is another popular stock to consider in this category. The company’s claim to fame is a 3D experience that allows players to build their own 3D worlds for their friends and other Roblox players to enjoy.Chipmakers
Nothing in the metaverse would be possible if not for the high-end semiconductors that process the massive computing workloads involved in developing and maintaining a digital world. The best example of a company in this category is chipmaker NVIDIA (Nasdaq: NVDA). The company is famous for its high-end GPUs, originally designed to reduce the time needed for processing 3D graphics. Today these GPUs are used in cryptocurrency mining machines, servers, and various other pieces of technology necessary for keeping the digital world alive.Crypto Miners
Cryptocurrency is the basis of the economy in the metaverse. Without cryptocurrency, there would be no metaverse. Digital land, art, music, gear, and more can be purchased using Ethereum and other digital currencies. Taking advantage of this new, global economy, some companies have purchased massive pieces of real estate and thousands of cryptocurrency mining machines. Once the cryptocurrency is mined, it’s sold to investors and those who use it for metaverse purchases. One such company is Riot Blockchain (Nasdaq: RIOT). The company operates a fleet of more than 7,000 mining machines.br Cloud Computing Companies
Finally, cloud computing companies are the lifeblood of the metaverse. The digital universe requires quite a bit of bandwidth, and companies like Amazon.com (Nasdaq: AMZN) are responsible for providing the hosting to keep the metaverse alive. Data centers, like those offered through Amazon Web Services (AWS), make it possible for the end user to communicate with the digital environment.Pros and Cons of Metaverse Stocks
As with any other category of stock, investing in metaverse stocks comes with its own set of pros and cons. Some of the most important benefits and drawbacks to consider include:Pros of Metaverse Stocks
The metaverse has experienced substantial growth over the past year, and many observers suggest that trend will continue, with the stocks in the sector following suit. Some of the biggest advantages of investing in these stocks include:1 Growth
Many metaverse stocks happen to be some of the strongest growth stocks on the market. Many stocks in this category are known for price appreciation well above that of the market average. The explosive growth in the metaverse as an emerging industry adds the potential for significant new revenue streams to some of the market’s best growth stocks.2 Excitement
The metaverse is new and growing quickly. It’s giving end users the ability to communicate with each other like never before and the ability to own digital products. Other applications for the metaverse include giving the medical community better options for tracking patient data, the financial community better options for transferring funds across borders, and almost certainly more uses yet to be discovered. There’s a high level of excitement involved when investing in a budding industry that has the potential to revolutionize various facets of life. Because of this excitement, investors are more likely to do more detailed research into metaverse stocks, resulting in wiser investment decisions.3 Known Leaders
The companies carving out leadership positions in the metaverse are the same household names that are known for their positions of leadership in other areas of technology. Think about the names listed above: Microsoft, Meta Platforms (Facebook), NVIDIA, Amazon; these are companies that you already know and likely use. There’s always a benefit to investing in the companies you know and trust. There’s also an advantage to investing in companies that have a clear track record of leadership.Cons of Metaverse Stocks
Sure, investing in metaverse stocks comes with its benefits, but what about the drawbacks?1 Speculation Driven
The industry has grown massive, but it’s largely driven by speculation. The general idea among metaverse enthusiasts is that the digital world and the innovation happening within it will change life as we know it. However, the industry is in its infancy and none of the world-changing concepts driving the value in the industry have been widely adopted by the general public. As a result, until the theories about use cases are proven and widespread adoption takes place, any investment in the industry will be a speculative one, coming with high risk compared to investments in stable, proven industries.2 Risk of Regulation
Regulation is a major risk to the metaverse — specifically regulation of the cryptocurrencies that make up the digital economy as it functions today. Due to the lack of regulation, the cryptocurrency landscape is rife with scams, and crypto assets sometimes used for money laundering and funding criminals, so regulators around the world are working to step in. In the most severe cases, global regulations could force metaverse participants to rethink their virtual economy. For example, in China, many aspects of the crypto economy have been banned. If other countries follow in their footsteps, the global validity of the metaverse and access to its economic platforms will be diminished.3 Significant Loss Potential
While the leaders in the metaverse industry are large, relatively stable companies, the vast majority of stocks in the industry represent small-cap and penny stocks that operate on a hope and a dream.Although a few small-cap and penny stocks make it to become some of the world’s largest companies, it’s also common for smaller companies — which lack the financial or innovative capabilities to keep up with the big dogs — to fail, resulting in significant losses for investors. Considering this, if you decide to invest in metaverse stocks, it’s important to avoid the noise of small companies popping up everywhere with big promises and high hopes. Instead, focus on the large, established companies that are likely to take dominant roles in the industry.