3 ways to stake your claim to the $30 trillion Metaverse

The metaverse may be the biggest investing opportunity over the next 10 to 15 years.

| More on:
A boy wearing a virtual reality headset opens his arms in wonder

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There is no shortage of high-growth trends for investors to be enamored with at the moment. Cloud computing, cybersecurity, telehealth, and even cannabis, represent sustainable double-digit growth opportunities.

Yet, some argue none of these opportunities offer the market potential of the metaverse.

An up to $30 trillion opportunity is on investors' doorstep

Put simply, the metaverse is the next iteration of the internet. It's a 3D virtual environment that will allow people to interact with their surroundings, as well as each other. This means an entirely new digital ecosystem will be built within the metaverse.

According to Matthew Ball, the CEO of venture capital company Epyllion, the metaverse is an opportunity with many zeroes to back it up. In speaking with Bloomberg News in November, Ball had this to say:

"Even if you have more modest expectations, precedent from the digital economy, the internet, the mobile internet, suggests that this is a $10 [trillion] to $30 trillion opportunity that will manifest in a decade or decade and a half."

By comparison, cloud computing has been one of the top-growing industries for years, and it's "only" expected to top $1 trillion in market size by the turn of the decade. That's a far cry from Ball's projection of up to $30 trillion for the metaverse by 2031 to 2036. With forecasts like this, it's no wonder investors have been willing to pile into this hypergrowth virtual ecosystem.

But there's no one-size-fits-all way to invest in the metaverse. Rather, there are three ways investors can stake their claim to this potential $30 trillion pie.

1. Diversify. Diversify. Diversify!

To begin with, investors can gain metaverse exposure by putting their money to work in metaverse-targeted exchange-traded funds (ETFs). The Roundhill Ball Metaverse ETF (NYSEMKT: METV), which Matthew Ball helped bring to market last year, is arguably the best example in the ETF space.

The idea behind a metaverse ETF is simple: Operating a virtual realm is going to require a lot -- and I mean a lot -- of working parts. There needs to be the computational power to support the metaverse, the networking and bandwidth to provide data, payments to handle virtual ecosystem transactions, hardware to allow users access to these virtual worlds, and identity security to ensure that digital assets and user identities remain protected. Mind you, this is just a small snippet of the physical and intangible needs of a massive virtual ecosystem. This means dozens of companies may play a role in supporting the metaverse.

The Roundhill Ball Metaverse ETF has 45 holdings, as of Feb. 3, with seven countries represented in the portfolio. Most importantly, the median market cap of these 45 holdings is $68 billion. In other words, the typical company being held by this ETF is going to be profitable and time-tested. While these stocks will have clear metaverse ties, there's a really good chance these companies also have highly profitable core businesses that'll fund metaverse research and development. Translation: You can sleep well if you choose to buy this ETF.

The one minor knock here is you'll pay a 0.75% net expense ratio, which is a bit higher than the weighted average expense ratio for all ETFs.  But if the metaverse is everything it's cracked up to be, a 0.75% expense ratio could be well worth it.

2. Buy individual stocks with metaverse exposure

If ETFs aren't your cup of tea, a second way to gain metaverse exposure is to directly invest in companies with metaverse ties.

The advantage of this method is it allows you to place greater weighting on the companies you feel will outperform. Plus, with most online brokerages eliminating commission fees and minimum deposit requirements, there are no fees or commissions to purchase stocks on the major U.S. exchanges. Thus, this method can save a little money, relative to purchasing an ETF.

On the flipside, buying individual stocks will require more initial and ongoing research. Thankfully, as noted, most of the companies involved in the metaverse are already well-established.

For example, Microsoft (NASDAQ: MSFT) has a variety of ways that it can benefit from the metaverse. The company's cloud infrastructure segment, Azure, is already No. 2 in global cloud spending. Cloud computing and storage will be necessary to handle the mountains of data and information generated within the metaverse.

Microsoft also made waves with its announced all-cash deal to buy gaming giant Activision Blizzard (NASDAQ: ATVI) for $68.7 billion last month. At the end of September, Activision had 390 million monthly active users, some of which are already playing games within virtual platforms. The Activision deal is another way Microsoft can bring people into its vision of a digital/virtual ecosystem.

3. YOLO with metaverse cryptocurrencies

For those of you with a high tolerance for risk (and reward), the third way to stake your claim in the $30 trillion metaverse is by purchasing relevant cryptocurrencies.

Whereas many of the companies associated with the metaverse are profitable and time-tested, most metaverse cryptocurrencies have only been around for a couple of years. It's not yet clear if they'll have the financial support or gaming interest to last for a significant length of time.

On the other hand, the two biggest players, The Sandbox (CRYPTO: SAND) and Decentraland (CRYPTO: MANA), have respective market values of $3.4 billion and $4.9 billion, respectively. If these two projects can consistently gobble up a significant portion of the capital being invested in virtual worlds, these market values could be an absolute steal.

Both The Sandbox and Decentraland have similar operating models. They're both play-to-earn-styled games built atop the Ethereum blockchain. They allow users to purchase digital plots of land that can be upgraded or built upon to attract other users. These plots of land are stored as non-fungible tokens (NFTs), which provide immutable proof of ownership of a digital asset stored on blockchain. Whereas the ownership of in-game creations stays with the developer in traditional PC and console gaming, Sandbox and Decentraland allow users to own and monetize their own creations via NFTs.

Going the "you only live once" (YOLO) route with cryptocurrencies is effectively a bet on the metaverse being decentralized. This may well be the case. But with many established companies throwing tens of billions at the metaverse, like Microsoft, a centralized future is also a very real potential outcome. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Sean Williams has no position in any of the stocks mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Microsoft, Ethereum and Activision Blizzard. The Motley Fool Australia has recommended Activision Blizzard and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A little Asian girl is so excited by the bubbles coming out of her bubble machine.
International Stock News

Opinion: This Nvidia forecast all but confirms that the artificial intelligence (AI) bubble will burst sooner rather than later

Nvidia's gross margin guidance points to pricing pressures that may signal an end to the irrational exuberance surrounding artificial intelligence…

Read more »

Hands reaching high for a trophy with a sunset in the background.
International Stock News

Is it too late to buy Nvidia stock in the second half of 2024?

The company has suffered from a recent sell-off, but maintains massive long-term potential.

Read more »

A white EV car and an electric vehicle pump with green highlighted swirls representing ASX lithium shares
International Stock News

Why Tesla could be the best 'Magnificent Seven' stock to own in the second half of 2024

Tesla's stock has been rallying of late, and there could be more gains to come in the weeks and months…

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
International Stock News

The CEO of Nvidia just sold 700,000 shares of his company's stock. Here's what investors need to know

What could it mean?

Read more »

A man in a business suit peers through binoculars as two businesswomen stand beside him looking straight ahead at the camera.
International Stock News

Where will Nvidia stock be in 1 year?

You might be late to the party.

Read more »

asx share price boosted by us investment represented by hand waving US flag across winning athlete
International Stock News

Is it too late for ASX investors to start buying US shares?

Should ASX investors start taking the gains from US shares like Nvidia off the table?

Read more »

A US flag behind a graph, indicating investment in US shares
International Stock News

Which US shares are ASX investors buying in 2024?

The ASX's most popular US shares contain some familiar names...

Read more »

A man and a woman sit in front of a laptop looking fascinated and captivated.
International Stock News

Prediction: 2 US stocks that will be worth more than Nvidia 5 years from now

These US stocks have a shot at surpassing Nvidia over the next few years.

Read more »