3 Best Metaverse Stocks I Would Buy Now Without Hesitation

The metaverse appears to be the latest investing megatrend that has caught the attention of investors and the media. Before dismissing it as just a passing fad, Cathie Wood, founder of ARK Invest and respected tech pundit, told CNBC in December that the metaverse could be a “multi-trillion dollar opportunity.” and that it will impact “every industry in ways we can’t even imagine right now”. For tech-savvy investors, this looks like an opportunity that might be too good to pass up.

We asked three silly contributors to highlight a Metaverse stock they would buy right now without hesitation. They came with Metaplatforms (NASDAQ:FB), Unity (NYSE:U), and Digital Real Estate Trust (NYSE: DLR).

Image source: Getty Images.

1. Meta Platforms: the name says it all

Danny Vena (metaplatforms): While the massive potential represented by the metaverse is certainly an attractive idea for investors, they will also want to tread carefully. These all-encompassing digital worlds, which will combine virtual reality (VR) and augmented reality and other technologies to create places where people can work, play and shop, are still largely conceptual, making the prospect of investing in it is somewhat risky.

Buying stock in a company that is already successful in another area will help ensure that the opportunity cost is not too high if the metaverse takes years to materialize. Meta Platforms is such an investment.

The social media company formerly known as Facebook stunned investors last October when it announced it was changing its name to Meta Platforms. The rebranding was intended to reflect the company’s growing emphasis on “bringing the Metaverse to life” and to let investors know it was going “all-in” on the Metaverse. CEO Mark Zuckerberg predicts that over a billion people will access the metaverse over the next decade.

Meta Platforms is way ahead of many of its peers, having already invested heavily in a number of gateway technologies that will eventually take users directly into the metaverse. The Oculus virtual reality headset controlled more than 50% of the market to close 2021 – more than all other rivals combined. The company is also collaborating with Ray-Ban on smart sunglasses, which include built-in headphones and cameras, allowing users to listen to music, make calls, and take photos and videos. Finally, Facebook Reality Labs – the research and development arm of Meta – has developed haptic gloves that use pockets of air to help users “feel” virtual objects, going where no headset has gone before.

Meta Platforms will have all the capital necessary to develop these digital spaces – and the tools necessary to take advantage of them – through its social media platforms: Facebook, Instagram, WhatsApp and Messenger. In the third quarter, Meta revenue grew 35% year-over-year to $29 billion, even in the face of headwinds from Applethe stricter privacy policies of . Meta generated over $9.1 billion in earnings and $9.5 billion in free cash flow.

Deep pockets of this magnitude will provide meta-platforms with all the necessary means to satisfy investors while simultaneously working to bring the metaverse to life.

People working together in a video game design lab.

Image source: Getty images.

Unity: Consider This Metaverse Content Creator

will heal (Unity): Unity software bills itself as the “world’s first platform” for real-time 3D content development. Its product helps create varied applications in industries such as gaming, automotive, construction, and film and could serve as a key building block within the metaverse. With Brandessence forecasting a compound annual growth rate of 45% in the metaverse, Unity has positioned itself to thrive.

Moreover, it already plays a vital role in many of its industries. Applications created with Unity receive five billion downloads per month, and this software has played a role in the development of 50% of all video games and 71% of the top 1,000 mobile games.

Its cinematic features are also expected to improve as the company acquired Weta software in December for $1.65 billion. This could turn into a strategic win for Unity as Weta’s graphics were behind movies such as the Lord of the Rings trilogy and The Suicide Squad. These tools and talent should increase the sophistication of the visual effects that Unity has.

Additionally, financial data indicates the growing popularity of Unity. In the first nine months of 2021, it posted revenue of $795 million, 44% more than the same period in 2020. This growth helped boost the stock for most of 2021. However, investors started selling Unity shares after the announcement of the Weta acquisition, most likely because of the $1.5 billion in convertible notes sold to fund the deal. Now, Unity stock has fallen nearly 40% since Weta’s announcement. With a price/sales ratio of 35, it remains significantly more expensive than Roblox, a peer in the game market that sells 26 times its sales.

Nevertheless, Unity continues to strengthen its competitive advantage by benefiting from the massive growth of the metaverse. This could help it justify its valuation and bring investors back to the stock over time.

A person works on a laptop in a data center.

Image source: Getty images.

Digital Realty Trust: A Game of Pickaxes and Shovels for the Metaverse

Brian Withers (Digital RealtyTrust): You might think it odd that I chose a data center REIT as my metaverse stock, but hang with me. Digital Realty is a pick and shovel game for the Metaverse Gold Rush. A “shovel” investment refers to the fact that all but a few miners during the California Gold Rush ended up empty. But the vendors who sold tools to these miners made a fistful of money. Rather than betting on which company might “win” in the race to build the Metaverse, this data center real estate specialist will win no matter what happens or how the Metaverse turns out.

Digital Realty is a gem for tech investors looking to diversify their portfolio into more conservative dividend plays, but can’t quit their habit of tech stocks. (I will include myself in this group.) The company builds and maintains data centers around the world and has more than 280 data centers in 50 metropolitan areas on six continents. A recent $3.5 billion acquisition of Teraco, Africa’s leading data center provider, adds to that total.

The company derives its revenue from monthly rental fees, utility reimbursements and fees for interconnection services between its data centers. Revenue topped $1.1 billion in the most recent quarter, an 11% year-over-year gain. Funds from operations, a key metric for the REIT, increased 33% to $447 million. The company signed 140 new customers for the quarter, contributing to its $119 million in annual new bookings, up 34% from last quarter.

Metric

Q3 FY20

Q3 FY21

Annual change

Income

$1.0 billion

$1.1 billion

11%

Funds from operations

$336 million

$447 million

33%

Total signed reservations

$89 million

$119 million

34%

Source: Company Earnings Reports.

The company is riding the tailwind of cloud computing, but could benefit from additional cloud services creating the metaverse. As virtual worlds and augmented reality become more common, the need for data center space will continue to grow even as individual servers become more powerful.

The company is a dividend lover’s dream stock. Since 2005, the company has increased its dividend by $1.00 to $4.64 for 2021, a compound annual growth rate of 10% over the period.

Over the past five years, the total shareholder return has been 84%. Not too shabby, but he dragged the S&P500 during this period. With the continued growth of cloud computing, the metaverse, and the massive proliferation of data, this company should offer investors a solid return over the next decade with a host of dividends to boot. As the stock has fallen back a little at the start of the year, I wouldn’t hesitate to add a few shares of this nugget to my portfolio.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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