Investors tap into the metaverse

Once a buzzword for tech gurus, the metaverse is fast entering the mainstream landscape with fashion brands and property tycoons among others joining the race into this brave new virtual world.

Analysts predict the metaverse will propel big tech, which is rolling out new innovations by the dozen, as well as large chip manufacturers in the near future.

But though its potential may only limited by the imagination of these tech titans and their investors, they also warn that it may be a decade before many of their concepts come to fruition.

Thrust into the global spotlight after Facebook changed its name to Meta last October, the metaverse refers to an immersive virtual world where users work, play, shop and socialize using emerging technologies such as augmented and virtual reality alongside existing ones like social media and video games.

BRAVE NEW WORLD

And investor interest about the new centralized virtual world keeps growing by the day.

New World Development (0017) chief executive Adrian Cheng Chi-kong last month snapped up one of the biggest land plots in the virtual game The Sandbox, a subsidiary of Hong Kong games unicorn Animoca Brands, while electronics giant Samsung has just opened up a virtual replica of its flagship New York store in the metaverse platform Decentraland for a limited time in one of the largest brand land takeovers in the platform's history.

Meanwhile, Decentraland is to host its first fashion week this March teaming up with luxury crypto marketplace UNXD, where users will be able to view fashion trends and buy clothes for their online avatars.

Also stepping into the metaverse is sports giant Nike, which acquired RTFKT Studios, which makes virtual sneakers, last year.

Some analysts believe it will take time for the metaverse to realize its potential, and research firm Morningstar says metaverse concepts will not materialize within the next five to 10 years, barring a "revolutionary" form factor.

But it also believes the metaverse will likely benefit large-scale manufacturers which have the capacity to produce chips at advanced facilities.

"Since many of the tasks that take place in a metaverse involve real-time processing of immense amount of data, this will require the chips involved to use advanced process nodes that are only available at TSMC, Samsung and Intel," equity analyst Phelix Lee says.

Smaller foundries such as UMC, SMIC (0981) and GF may benefit only slightly in low-value parts like power management and display drivers.

Morningstar also notes that the Chinese government is wary of cybersecurity issues in the metaverse, which may put the brakes on short-term development.

At a forum last November, Gou Wenjun, director of the Anti-Money Laundering and Analysis Centre at the People's Bank of China, said virtual assets including NFTs and the metaverse should be regulated to avoid the risks associated with money laundering, while the state-run tabloid People's Daily also warned against irrational behavior in the current metaverse "mania" in the same month.

Despite these warnings, Chinese firms ranging from tech giants to telecommunications firms are still racing towards the metaverse.

Bytedance has invested in a startup developing an AI-powered female virtual assistant called Li Weike, after the Tiktok parent acquired a VR headset maker Pico last August.

Stocks related to the metaverse have attracted huge interest from investors following Facebook's name change with a metaverse ETF, whose top holdings include chip giant Nvidia and online gaming platform Roblox, raking in more than US$830 million (HK$6.47 billion) in fresh inflows over the last couple of months. Launched last June with assets of just a few million dollars, the Roundhill Ball Metaverse ETF is now worth US$912.4 million.

When it comes to picking metaverse gaming stocks, China Everbright Securities International strategist Kenny Ng Lai-yin favors leaders such as Tencent (0700) and NetEase (9999), adding that live streaming operator Bilibili (9626) may also fare well.

Among hardware stocks, Ng recommends Sunny Optical (2382) and AAC Technologies (2018) but warns that it will take a little longer for hardware manufacturers than software developers to see the metaverse development reflected in their stock price.

However, shares of Sunny Optical have enjoyed a cumulative gain of more than 40 percent in 2021, thanks partly to the metaverse trend, analysts say.

Ng says investors can also look at telecom stocks including the three state-owned giants China Mobile (0941), China Telecom (0728) and China Unicom (0762) as the metaverse will boost demand for high-speed 5G networks.

GLOBAL BATTLE

Globally, this year will see big tech gearing up for many a virtual battle as analysts see metaverse mania driving tech titans such as Apple even higher.

Apple became the first company to hit a US$3 trillion stock market capitalization last Monday, before ending the day a hair below that milestone and Loup Ventures partner and analyst Gene Munster says an aggressive move into the metaverse will prompt a further expansion in Apple's earnings.

The tech giant is expected to release its AR/VR headsets in preview this year and analysts also expect its market value could head for a new record on the back of opportunities in autonomous vehicles in addition to metaverse business.

Meta too is planning to release a high-end virtual reality headset this year called Project Cambria following the news that its Oculus virtual reality headset saw strong sales during the holiday season.

And at last week's CES 2022, the world's largest annual consumer technology trade show, Sony showed off its new virtual reality headset PlayStation VR2 while Qualcomm and Microsoft revealed they are partnering to develop a new, customized chip that will control lightweight AR glasses within Microsoft's ecosystems.

But amid all the froth about the metaverse, Ng offers a few words of caution: "The metaverse is still at an early stage of development," he warns. "Investors should be prepared that the development will not become the major driver of a (metaverse) company's financial performances in the short term."