Metaverse has become the buzzword in the tech industry. Widely regarded as the next step in the evolution of internet technology – also known as Web 3.0 – metaverse refers to transparent, persistent, interactive and immersive 3D virtual reality or mixed reality experiences, which are the interaction of the real world. and the objects of the digital world. The metaverse is expected to change the way people study, work, play, travel and socialize by moving many of these activities from a physical economy to a virtual economy.
Currently, everything associated with the Metaverse is increasingly seen as the next big thing to get. However, to make money on the stock market, investors must learn to separate fact from fiction. While the metaverse is undoubtedly a huge opportunity – estimated at $ 1 trillion to trillions, depending on the source – only a few technologically sound, financially stable companies with a solid reputation will capture a significant share of this market.
With this idea, Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT) are the two blue chip companies that appear poised to make the most of this evolving opportunity.
The metaverse involves the use of various advanced technologies such as augmented reality, virtual reality, and video streaming, which require parallel calculations (many calculations are done simultaneously) and ultra-fast. This can be made possible by high-speed graphics processing unit (GPU) chips from Nvidia.
Nvidia’s GPUs are widely preferred by gamers around the world for their ability to render ultra-realistic graphics, and by data centers for facilitating huge and complex workloads. Nvidia recently released its first data center processor, Grace CPU, which is well suited for high-compute, artificial intelligence (AI) -based workloads.
The company also introduced the next-generation Bluefield Data Processing Unit (DPU), aimed at accelerating the processing of software-defined network, data storage, cybersecurity and artificial intelligence applications. All of these next-generation hardware technologies are well suited to support the metaverse.
Beyond hardware, Nvidia has also come up with a scalable, multi-GPU, real-time software development platform called the Omniverse. This technology platform will enable real-time collaboration between global 3D design teams working across multiple software platforms. Nvidia expects companies to use Omniverse to improve productivity through remote collaboration between multiple 3D design software and creating digital twins of a physical environment (to plan and simulate in the digital world, then replicate in the real world).
Recently, in November 2021, the company introduced the Omniverse Replicator synthetic data generation engine, which generates simulated synthetic data used to train artificial intelligence models. The company also launched Omniverse Avatar, which harnesses artificial intelligence, computer vision, natural language processing and simulation technologies to create interactive digital characters or avatars. While these avatars will play a major role in the metaverse, the immediate opportunity for the Avatar Omniverse lies in the creation of AI assistants who can help process billions of customer service interactions across all industries.
Even without the Metaverse opportunity, there’s a lot to like about Nvidia, a company that accounts for 83% of the global discrete GPU market share. The company’s gaming segment is benefiting from several favorable winds, including the ongoing video game GPU upgrade cycle and growing overall GPU demand in games, esports, streaming, and content creation.
Nvidia’s data center business is also experiencing high demand for GPUs for handling AI-intensive workloads. In the third quarter, the company easily beat consensus estimates and headed for fourth quarter results well ahead of consensus analysts’ projections.
Nvidia has several strong tailwinds to bet on, including the evolution of the Metaverse. In this context, I am very optimistic about this title.
The world’s second-largest company by market capitalization, Microsoft is working to bolster its existing cloud and business productivity offerings with the metaverse for a range of enterprise use cases. For this purpose, the company has created a mixed reality platform called “Microsoft Mesh” and an Internet of Things (IoT) platform called Azure Digital Twins on Microsoft Azure cloud services.
Mesh enables developers to create immersive and interactive mixed reality experiences for remote collaboration use cases. In November 2021, Microsoft launched the “Mesh for Microsoft Teams” solution, which allows Microsoft Team users to interact with digital avatars in an immersive mixed reality environment for a range of activities such as meetings, training or social interactions. With the growing popularity of working from home and hybrid working arrangements, this focused workplace collaboration platform may see multiple applications in the years to come.
Azure Digital Twins is an enterprise-centric tool that enables businesses to create a digital simulation of objects in real time, making it easier for organizations to innovate, manufacture, and plan at much lower costs.
However, it’s not just the metaverse that can catapult Microsoft’s future stock prices. The enterprise intelligent cloud (including Azure) and the productivity and business process segments (Teams and Office 365) continue to be the main drivers of revenue. Azure represents 21% of the global cloud infrastructure market and is the second player after Amazonis AWS. The growing shift towards a subscription-based business model has also improved the visibility of the company’s revenue.
Microsoft’s strong financial data reflects the company’s robust business model. The company’s past 12-month (TTM) revenue grew 19.8% to $ 176.25 billion. Microsoft also ranks better than many of the big tech players in terms of profit margins. The company has $ 130.6 billion in cash and $ 78.9 billion in debt well below its balance sheet.
Microsoft already provides the backdrop for a large, well-diversified, and highly profitable business, as well as a healthy balance sheet. When you include the metaverse opportunity, Microsoft seems well positioned for a solid growth trajectory in the years to come.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.