The Metaverse Re-Imagined

“The Metaverse is a fictional structure made out of code. And code is just a form of speech—the form that computers understand”.
--Neal Stephenson, Snow Crash

The term “Metaverse” has become the latest buzz-word for those who feign understanding of technology, or to sound smart at kids’ birthday parties. Take your pick. In truth, it’s a recycled term first coined in Neal Stephenson’s novel, Snow Crash, written back in 1992. It’s quite amazing how prescient his fiction is of our current time. Wikipedia’s definition is arguably the most useful. It is a “hypothesized iteration of the internet, supporting persistent online 3-D virtual environments through conventional personal computing, as well as virtual and augmented reality headsets”. In simple terms, it is the virtual reality of cyberspace and our interaction to it.

The truth is, the Metaverse, has been around for a quite some time. In 2003, Linden Labs created a video game called “Second Life” which allowed players to generate a personalized character--an avatar—and live a second life in an online virtual world. Fast forward to today, and the popularity of a virtual existence has grown exponentially. We believe that the major factor for this is the global adoption of the smartphone. There is no longer a physical barrier to accessing information and content.

How should we wrap our minds around this? First, let’s recognize that the concept of living “virtually” has been around for quite some time, and shouldn’t be seen as a surprise. It seems to us that hardware is trying to play catch-up with the software. Ever tried on a virtual reality headset? It’s uncomfortable, clumsy to adjust, and large. As we speak, companies are clamouring in their research labs to generate smaller, less cumbersome versions of headsets and eyewear to enhance the user experience. Second, younger people embrace integration with technology, and they will be the continued catalyst for future demand. According to the World Economic Forum, “Millennials are now the largest adult cohort worldwide”.[1] For all you dinosaurs out there, remember the phrase: if you can’t beat them, join them!

Here's one way to join them. Buy an ETF (exchange traded fund) that invests in the companies poised to grow in an ever-expanding Metaverse. The largest fund is META (Roundhill Ball Metaverse ETF) and it trades in the US on the ARCA exchange.  There are some Canadian options springing up, but they are so new we don’t have enough information to share. 

Pictured below are the key companies that make up this investment.

Top 10 META Holdings as of December 10^th, 2021.

Source: YCharts

• What’s interesting to note is that Mega-Caps like MSFT, FB, AAPL, and AMZN are in the top ten. Clearly, they derive their revenues from growth in this area. In fact, Facebook rebranded as Meta Platforms Inc. to accentuate this point.
• The top two names by weight are also very intriguing. NVDA is a high-end microchip producer that supplies numerous industries, and RBLX, a recent IPO, is a software company that specializes in creatable online video games targeted to young gamers. We can’t imagine a future in which these types of businesses are not in demand.

It is our contention that the Metaverse is here to stay. Assuming that this is the case, doesn’t it make financial sense to profit from its existence? At the very least, we believe you should own shares in companies like the Mega-Caps mentioned above. For those of you who are more adventurous, or convinced, an allocation to META may make sense and hopefully pay out dollars!

[1] https://www.weforum.org/agenda/2021/11/millennials-world-regional-breakdown/

Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Patrick A. Choquette, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.