The metaverse might be the biggest growth opportunity of the next decade.
The two metaverse stocks to buy tackle immediate and long-term growth opportunities.
Meanwhile, the stock to avoid has a questionable operating model.
Though there are no shortage of high-growth trends for investors to choose from, none appears to offer more potential than the metaverse .
In simple terms, the metaverse is the next iteration of the internet. It’ll allow users to interact with their surroundings and each other in 3D virtual worlds. Aside from providing entertainment, these virtual worlds represents brand-new ecosystems that can be monetized in a variety of ways. In addition to payments within these virtual landscapes, there’s the processing, storage, latency, digital identity/verification, and so on, that needs to be addressed to make the metaverse work.
The estimated market value of the metaverse varies wildly. Matthew Ball, CEO of venture capital company Epyllion, believes the metaverse grows into a $10 trillion to $30 trillion market within 10 to 15 years. Meanwhile, Morgan Stanley foresees the metaverse being worth $8 trillion in China alone. Image source: Getty Images. These lofty dollar figures signal an enormous opportunity for investors. But it’s important to recognize that not every company is going to be a winner. Below are two metaverse stocks (of varying risk levels) that can be bought hand over fist, as well as one for investors to avoid like the plague. The first metaverse stock to buy hand over fist: Microsoft
While it’s not a selection that’ll win any awards for originality, tech giant Microsoft ( NASDAQ:MSFT ) is the first metaverse stock investors can confidently buy hand over fist. In my view, Microsoft has three catalysts that make it one of the smartest stocks to take advantage of metaverse growth.
To start with, there’s the elephant in the room : the company’s January-announced $68.7 billion all-cash acquisition of interactive gaming company Activision Blizzard ( NASDAQ:ATVI ). On top of acquiring Activision’s numerous well-known gaming franchises ( Warcraft , Call of Duty , and Candy Crush ), this deal is about Microsoft democratizing the game-building process and expanding the metaverse beyond gaming. Even though Microsoft CEO Satya Nadella isn’t entirely certain what the definition of “metaverse” will pertain to, he does believe it’ll represent a “collection of communities and individual identities anchored in strong content franchises accessible on every device.”
Secondly, Microsoft’s roots to the metaverse were planted well ahead of the Activision Blizzard buyout announcement. As an example, Microsoft has been developing mixed-reality headsets for more than a half-decade. It’s currently working on the third generation of its HoloLens headset, which, according to TheVerge.com, may be used by the U.S. Army for life-like mixed reality training. With mixed reality and virtual reality headsets being the initial gateway to the metaverse, Microsoft looks to be one of the few companies in position to thrive.
The third catalyst is simply Microsoft’s enormous operating cash flow . Thanks to rapid growth from cloud infrastructure service Azure, and exceptionally high margins and stable demand from its Windows and Office franchises, Microsoft brought in $83.9 billion in operating cash flow over the trailing 12 months. This gives the company an abundance of capital, and quite the buffer, to invest aggressively in the metaverse. Image source: Getty Images. The second metaverse stock to buy hand over fist: Fastly
For investors with a considerably stronger stomach for risk (and reward), Fastly ( NYSE:FSLY ) is the second metaverse stock that can be bought hand over fist.
The metaverse is going to take many years to develop, which means there are a number of moving parts that extend well beyond mixed reality and virtual reality headsets. Fastly is one of the better-known content delivery networks (CDNs). It’s responsible for delivering content from the edge of the cloud to its destination as quickly and securely as possible. In other words, its task within the metaverse will be to reduce latency. When an action is taken within a virtual environment, Fastly will ensure there’s as little delay as possible in processing that action.
We’ve already witnessed plenty of evidence that Fastly’s CDN is a popular and trusted solution . Over the past year, the company’s total customer count rose to more than 2,800 from less than 2,400, while the number of enterprise customers jumped to 445 from around 380. This latter increase is particularly important, as it demonstrates enterprise clients have looked past a network outage in June 2021.
Additionally, Fastly’s dollar-based net expansion rate of 121% in the […]