Wednesday, October 5

Analysis | An investment inspired by the metaverse

When Neal Stephenson published his science fiction novel Snow Crash (1992), little did he know the impact his original concept of the metaverse might have on the future. Currently, there are already companies that bet on this virtual universe. Facebook is the most visible; He believes in the metaverse so much that he has changed the group’s business name to Meta. But to achieve that metaverse, it will be necessary to offer a powerful virtual experience to the user, which is very immersive and persistent. This is a tall challenge. The companies involved strive to accumulate know-how in the necessary technologies, either by buying companies or by organic development. From here, the key to this new business is to think that the real and virtual economy will not be a zero-sum game, but rather that the whole will increase in value significantly.

Its supporters assure that the metaverse will be used to socialize, work or play. It promises to replace today’s bland chats with dazzling virtual meet-ups between friends, whether it’s at the Grand Canyon or the Sydney Opera House, to say the least. Each individual will have their avatar and there will be interaction between avatars, companies and organizations. You can buy cars, works of art, experiences or equipment for the avatars. The potential for advertising is extraordinary.

But to make the metaverse immersive and persistent, sufficient integration of different technologies is essential: 3D graphics, VR glasses, VR wearables, digital twin, artificial intelligence (AI), cloud, 5G, blockchain, etc. A fundamental piece in this technological and economic puzzle is the cryptographic assets or non-fungible tokens NFT (non-fungible token). They are based on the blockchain and allow you to own cars, paintings or real estate, as well as being able to resell them on the market; a Louis Vuitton bag or a Ferrari, for example. There are already several marketplaces for NFTs, many offered by unlisted companies.

Various companies will benefit directly from these activities, such as hardware manufacturers, software developers and providers of a multitude of services. It is premature to specify when the metaverse will take off, but if you want to build an investment portfolio, you will have to look among those companies that will define its architecture and collect the first income from this activity. We will select four.

The first would be Meta, well known, with 3,500 million active users per month (between Facebook, WhatsApp, Instagram and Messenger), a heterogeneous population to offer them an extra life in the metaverse.

To find the second company in our portfolio, it is convenient to investigate the flourishing video game industry, a market close to 180,000 million dollars. After all, this is where the technology used in GPS navigation systems originated.

In this section, the Californian Roblox is uniquely positioned to benefit from the economy of the metaverse. It not only has sophisticated online games, but a powerful platform, which is the key to its strategy. There, resources and tools are offered for users to collaborate and design their own games, being able to obtain income from their own creations, either by selling virtual artifacts or merchandising material. The platform even has its own cryptocurrency, called Robux. In the last three years, this particular ecosystem has been enriched with 9.5 million creators and 24 million experiences. The Danish company Unity can be another alternative in this line.

Another essential pillar that will support the metaverse is hardware. In this sense, the American Nvidia is the third company in our portfolio. It supplies graphics processor units (GPUs), which drive high-quality, hyper-realistic 3D scenes. Just 10 years ago, its natural market was video games and design and simulation stations for engineering or architecture. Its products have been evolving and are present in powerful cloud servers. Also, their processors are optimal for running AI programs. From then on, the company has been introducing solutions aimed at different verticals (autonomous cars, cloud, bioscience, finance, etc). In fact, Nvidia already uses the concept of the omniverse to integrate its powerful ecosystem of solutions.

The latest entry-level title in this quirky portfolio is France’s Dassault Systemes, offering powerful design and simulation tools in the virtual world, which can interface with the real world, via IoT. With its 3DExperience platform it is possible to create complex digital twins (for an airplane, a chemical plant or an entire city, for example). Functionalities can be modified, simulated and then the result can be optimized. This company will be able to benefit from the generation of very sophisticated objects and scenarios for the virtual universe.

The technological base that pre-configures the metaverse is already available, albeit distributed in relatively isolated silos, making it difficult to see the whole picture. As technological standards emerge, the activity and economy of the metaverse will unfold. Beyond a certain threshold, the scale factor in growth can be huge.

In any case, the investment in this portfolio is for the medium and long term. If we analyze its behavior on the stock market during the last year, Meta has appreciated 25% and Roblox, 128%, although the latter has been listed on the stock market since March and still has no profit. For its part, Nvidia shares have increased by 119% and those of Dassault Systemes, by 58%. For reference, the S&P 500 has gained 26% and the Euro Stoxx 50, 19%.

In that metaverse of Neal Stephenson there was a single circular highway, 65,536 km long and 100 meters wide. In that lonely street all the frenetic virtual life of the planet was developed; the rest was black desert. The current version seems to be more ambitious, with more space and resources. But it will also face potential problems, such as ensuring good practice in such a complex space or managing governance and resolving conflicts. We will have to wait to see if the metaverse will become a megatrend and if it will manage to generate enough real and virtual value for people.

Xavier Alcober Fanjul is a consulting engineer