- Apple’s installed base of electronics devices could be a boon for its rumored metaverse product.
- Nvidia is already providing a key building block to make its metaverse ambitions a reality.
The metaverse is a hot trend in the tech industry right now as it could usher in a new era of socializing that allows people to work, conduct commerce, play, study, collaborate, or even attend live entertainment events in a three-dimensional virtual world.
While still in its early stages, the metaverse market could clock a 44% annual growth rate over the next six years and generate $872 billion in revenue by 2028, according to market research firm Reports and Data. There are several ways investors can tap into this potentially lucrative trend as it is expected to comprise multiple components, including hardware, software, semiconductors, connectivity, and cybersecurity.
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Apple has reportedly set its sights on the metaverse hardware market and is expected to launch a headset supporting augmented reality (AR) and virtual reality (VR) that will enable consumers to enter the metaverse. Supply chain gossip indicates that Apple’s headset could support 8K resolution powered by 15 camera modules and could be priced between $2,000 and $3,000.
Other supply chain sources suggest that Apple has made significant progress on the development of its headset, with the device reportedly reaching the halfway mark of its journey toward final production. It is expected to be unveiled sometime later this year and could be made available for sale in 2023.
Such a device could unlock a massive metaverse hardware opportunity for Apple as the global market for AR/VR headsets is expected to grow nearly 10 times in the next four years. Counterpoint Research estimates that 105 million headsets could be shipped in 2025 as compared to 11 million units last year. Meta Platforms‘ (NASDAQ:FB) Oculus Quest 2 currently leads this space with an estimated market share of 36%, according to a survey of users on video-game distribution service Steam.
Apple, however, could give Meta Platforms a tough fight on this front thanks to its huge installed base of 1.8 billion devices and a big ecosystem of AR/VR applications. The addition of a new device to Apple’s product portfolio means that it would have a new offering for its huge base of existing users. At the same time, Apple’s App Store sales could also get a shot in the arm as the company says it has more than 14,000 AR-related apps in the store that are reportedly used by millions of customers already.
As such, it won’t be surprising to see Apple corner a nice share of the headset market in the future. And CEO Tim Cook said on the January earnings conference call that the company sees “a lot of potential in this space and are investing accordingly.” So it could only be a matter of time before Apple makes the jump into this potentially lucrative market.
With the stock trading at 25 times trailing earnings as compared to the Nasdaq 100‘s earnings multiple of 30, metaverse investors can get their hands on Apple stock for a cheap price right now. This is one opportunity that they may not want to miss as the metaverse is one of the many huge catalysts the company is sitting on, which could help Apple grow its earnings at a faster pace than the annual 15% rate analysts are currently forecasting for the next five years.
Nvidia is known for supplying graphics processing units (GPUs) that are used for video gaming, data centers, and other applications. The good part is that the chipmaker has already started providing the building blocks of the metaverse.
Meta Platforms is using 6,000 of Nvidia’s A100 GPUs to power its artificial intelligence (AI) enabled SuperCluster supercomputer. The system will eventually be scaled up to use 16,000 Nvidia GPUs later this year, which will make it the world’s fastest supercomputer by the end of the year, as per Meta’s claims. The social media giant also said that it believes that the supercomputer could help it in creating “the foundational technologies that will power the metaverse.”
So Nvidia’s GPUs are going to play a key role in making the metaverse a reality. That’s not surprising as the metaverse will need a massive increase in data-center computing capacity to serve 3D virtual worlds in real-time to millions of users concurrently. At the same time, content creators will also need a lot of computing power to create virtual worlds and other metaverse applications, which accelerates the need for more Nvidia GPUs.
In all, the metaverse is expected to unlock a sizable revenue opportunity for the company. Wells Fargo analysts estimate that the chipmaker could see an additional annual revenue opportunity worth $10 billion over the next five years thanks to the metaverse, which could give its growth a nice boost considering that the company has generated $27 billion in revenue over the trailing 12 months.
However, Nvidia’s metaverse opportunity could be much bigger than what analysts are expecting thanks to the growth of the video gaming hardware market. The metaverse is expected to aid the growth of the video game industry thanks to a potential increase in the demand for AR/VR hardware to play games in the metaverse, compatible video games, and more-powerful video gaming hardware to run 3D virtual worlds.
More specifically, the demand for gaming hardware is expected to increase from $63.5 billion in 2020 to nearly $78 billion in 2024 thanks to the metaverse. As a result, the demand for the chipmaker’s GPUs that are used in personal computers to run resource-hungry games should increase and give its gaming business (its biggest source of revenue) a big bump.
So there are multiple ways in which the metaverse could power Nvidia’s growth. And now looks like a good time to buy the stock as it is trading at 59 times trailing earnings, which is right around its five-year average earnings multiple of 58. It’s good because the stock is way cheaper than last year when it was trading at 90 times earnings.
Nvidia is still on the expensive side, as its valuation indicates. But investors looking for a growth stock might consider taking advantage of its pullback in 2022 since its earnings are expected to grow at an annual pace of 30% for the next five years, and catalysts such as the metaverse could amplify its growth.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns and recommends Apple, Meta Platforms, Inc., and Nvidia. The Motley Fool recommends Nasdaq and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.