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Metaverse Madness: 2 Growth Stocks Building the Future

The Motley Fool
The Motley Fool
 2021-12-06

The internet changed the way the world does business, the way we connect with other people, and the way we work. But several technology companies now have their sights on what could be the next generation, and it's known as the metaverse.

The existing internet is viewed by users on the screens of their respective devices. When we browse someone's social media profile, for instance, what we're observing is typically already in the past. The metaverse is set to give users a sense of presence, with real-time connections in what is slated to be a virtual version of real life.

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Image source: Getty Images.

It will take a collaborative effort from some of the most innovative tech companies to create this new world. Here's two of them set to lead the charge.

1. The case for Advanced Micro Devices

Powering the metaverse will require some serious computing hardware, and Advanced Micro Devices (NASDAQ: AMD) is widely considered one of the world's best producers of semiconductors . Its computer chips are responsible for driving some of our most popular consumer electronics, and it's already breaking ground in the world of virtual reality.

AMD is partnered with the virtual reality arms of tech powerhouses Microsoft and Meta Platforms (NASDAQ: FB) to deliver innovative graphics solutions. Meta owns the Oculus line of virtual reality headsets, which will be key to its billions of users one day experiencing the metaverse, and AMD offers plug-and-play graphics chips that bring them to life.

AMD's LiquidVR technology is designed to bring the best out of its semiconductors . Its primary purpose is to ensure a smooth, seamless graphics experience amid the intense movements experienced within the metaverse. Typically, graphics technologies haven't been up to the task, leaving users with an uneasy feeling after spending too much time using virtual reality headsets, but AMD has made strides in solving this.

AMD has an immense amount of experience to lean on when it comes to innovating, so much so that it's the chipmaker of choice for the world's largest brands. Its chips can be found in Sony 's PlayStation 5, Microsoft's Xbox, and soon, Tesla 's Model S and Model X infotainment centers.

Wall Street analysts are positive on AMD's stock, with just 1 out of 39 of them maintaining a sell rating. The company is on track to deliver $16.1 billion in revenue for 2021, which represents 65% growth compared to 2020, but this could be trounced over the long term with the potential of the metaverse .

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Image source: Getty Images.

2. The case for Meta Platforms

Meta Platforms was formerly known as Facebook , and the company's name isn't all that has changed. While its flagship platform retains its name, as does Instagram and WhatsApp, the company's focus has overtly shifted to the metaverse.

With over 2.9 billion monthly active users, what organization is better positioned to develop the next generation of the internet?

Meta's CEO Mark Zuckerberg has a grand vision for the metaverse that involves user-controlled avatars, which hold inventories of digital goods and can teleport to different experiences. Mobility inside a virtual world would be far simpler than it is in real life, after all. But these features point to one thing, and it could be Meta's biggest ever financial opportunity: The metaverse will likely host its own self-sustaining economy.

If Meta builds and owns the foundations (or architecture) for the metaverse, it's rational to think it could monetize what happens within it. It's possible the company could have similar power over the virtual realm as it has over its Facebook social network, for example.

The company is allocating an enormous amount of resources to this project, with 20% of all employees now working in its Reality Labs segment.

Meta is on track to have grown its yearly revenue by 30 times over the last decade, to $117 billion in 2021. It's also highly profitable, with the stock trading at a forward price-to-earnings multiple of 22 based on $13.95 earnings per share in 2021. By comparison, the Nasdaq 100 index -- of which Meta is a component -- trades at a multiple of 34, so Meta's stock is 35% cheaper than the broader market.

And yet, should the metaverse fulfill its potential, it could dwarf Meta Platforms' past growth rates.

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Anthony Di Pizio has no position in any of the stocks mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. The Motley Fool owns shares of and recommends Advanced Micro Devices, Meta Platforms, Inc., Microsoft, and Tesla. The Motley Fool has a disclosure policy .

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