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Welcome to the metaverse

Key messages

  • The metaverse is a fully-functional, digital world that’s complementary to reality.
  • Advances in technology and changes in social behaviour are leading the way.
  • Involved companies will define what the internet will look like in the future.

In a rather high-profile fashion, the company formally known as Facebook, doubled down on its ambitions to bring the metaverse to reality by changing its name to Meta. Following its announcement earlier in the year that it would be investing US$50 million to develop its metaverse, the company outlined its plans to move beyond social media into a fully immersive internet experience

What is the metaverse?

At its annual developer forum, Facebook, ahem, Meta outlined its plans to create what it described as the next evolution of social connection – a highly immersive and embodied internet experience.

The metaverse is seen as the next evolution or successor to the internet, its third phase – from connecting PCs around the world to mobile internet and now to the metaverse.

Broadly speaking, a metaverse is a fully-functional, 3D virtual or digital world that is complementary to reality. The idea here is to radically rethink the way people all over the world interact with each other (and how businesses interact with each other and with their customers) in a virtual world. Think Ready Player One.

Although not virtual (yet), visiting Disney World is a good example of a sort of “non-digital” metaverse, in that it is a complementary world that exists alongside reality. When you walk through the gates of Walt Disney World, “plug-in” if you will, you immerse yourself in the Magical Kingdom – your favourite characters come to life, you experience your favourite films, and everything is Disney-fied.

Advancements in technology and changes to social norms are powering the movement

The metaverse experience is highly dependent on two factors – technological advancements and people’s willingness to get on board – and conditions seem perfect.  

From a technological standpoint, we’ve seen the gap between reality and computer-generated graphics close. Additionally, we now have remote access to enormous processing power via cloud computing and virtual and augmented reality have become more and more mainstream.

From a behavioural perspective, we are connecting and sharing more than ever with each other and with companies via social media. Due to shutdowns and restrictions, the Pandemic accelerated the adoption of things like online meetings, telemedicine, and virtual classrooms.

Using online meetings as an example, Zoom, Teams, Skype have all done a good job connecting us on screen. But is this the endgame? Not likely. Today’s solutions are generally 2D, they’re not particularly engaging or immersive, and are limited by what you can do or fit on screen. It’s not hard to imagine a solution that replicates in-person meetings with virtual avatars, removing many of the limitations listed above.

Investing in the metaverse

As a broad investment theme, the metaverse is exciting and packed with potential. Companies focused on developing metaverses and the technologies that enable them are building what the internet will look like going forward. Much like how the internet created investment opportunities, so too will the development of metaverses. Here are a few examples of holdings from the MDPIM U.S. Equity Pool:

As already mentioned, Meta Platforms, Inc. (FB) is diving into metaverse development, but it also has projects related to virtual reality (Oculus), augmented reality (Spark AR), and smart glasses (Ray-Ban Stories).

Microsoft Corporation (MSFT), through its Xbox, Office, HoloLens, and Azure brands, is involved in the gaming, enterprise software, enterprise virtual reality, and cloud computing businesses.

As a graphics processing unit (GPU) and system on a chip (SoC) designer and manufacturer, Nvidia Corporation (NVDA) specializes in powering gaming consoles, self-driving cars, and artificial intelligence. Its products are also highly coveted by cryptocurrency miners.

Unity Software Inc. (U) is a creator of real-time 3D engines used to make games and other digital worlds.

As the maker of Snapchat, Snap Inc. (SNAP) already has 300 million plus users engaging in a virtual world with avatars, e-commerce, and augmented reality.

No one knows the specifics of how metaverses will evolve over the next decade (will there be one or multiple multiverses?) – but the investment opportunities arising from the movement are now a reality. We are confident that we will hold and identify new companies that will define how people, communities, and businesses interact with each other over the internet of the future.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec).

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.

 

About the Author

RICHARD SCHMIDT, CFA, is an Associate Portfolio Manager with the Multi-Asset Management team at MD Financial Management (MD). His primary focus is MD’s North American equity funds and pools.

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