Robert R. Fragnito | Chief Operating Officer | Financial Advisor | Portfolio Manager
Anointed the “next frontier” of the internet, the metaverse has arrived. For many of us, we first heard of the metaverse after Mark Zuckerberg officially rebranded parent company Facebook into Meta Platforms, Inc. Zuckerberg has signaled that the social media giant is going all-in on the metaverse.
In our view, we are witnessing a significant paradigm shift in the evolution of internet and several sectors that service the digital economy. In a sense, the world of tomorrow is here today, but there is still a long road ahead for the development of this innovative and futuristic concept.
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Imagine yourself putting on a set of virtual reality goggles or stepping into a booth, and suddenly—you are transported into a world of wonder and amazement.
You’ve entered a swanky club surrounded by self-created avatars. The bartender hands you a drink, a small price for admission, which you’ve paid for with your digital account. An avatar catches your attention, now you begin chatting with “people” from around the world at the hottest club in the metaverse.
You get bored, you decide to race your favorite sports car at an impressive virtual variation of the Grand Prix of Monaco. Perhaps you’re still bored, and again you’re off to another exotic destination within seconds.
Entertainment aside, the metaverse will also serve as another means of connectivity for the business world. Visualize being the only person in a conference room preparing for your weekly board meeting. A chime sounds and the projector above you starts to project a real-time holographic image of nine other colleagues in the “empty” chairs surrounding you.
All of this made readily accessible through the metaverse, and the possibilities seem limitless.
What is the Metaverse?
The term metaverse was created by science fiction author Neal Stephenson in his 1992 novel Snow Crash. The book describes a virtual world where individuals interact with each other as avatars and offers a potential template for what the metaverse will likely look like.
This should excite Star Trek fans who are familiar with the holodeck, but surely this is no longer a science fiction fantasy. In the real world, the metaverse is simply the next evolution of the internet.
It will give consumers a 3D experience of the internet as never witnessed before. The metaverse will be powered by virtual reality and augmented realty headsets along with smartphones and other physical venues connecting consumers to the space.
What does this mean for Investors?
If Zuckerberg’s expectations prove to be correct, the metaverse will become a major part of the digital economy. Our critical observation of Zuckerberg’s recent announcement, as he admits, is that his Meta Platforms, Inc. is not the sole player in the tech space developing the metaverse.
Several companies are also engaged. To name a few, Microsoft, chipmaker Nvidia and video gaming companies such as Epic Games and Roblox are also working on long-term plans to develop the metaverse. It has even drawn the attention of the Italian fashion house Gucci who is collaborating with Roblox in creating digital-only accessories.
A critical piece of our data driven approach involves sector analysis. As many of our clients know, our approach demands identifying leading sectors in the economy. Yes, the metaverse falls under the very large and ever-expanding sector of technology, but even within this sector new industries quickly develop. What we are witnessing with the metaverse is a birth or spinoff of a new sector in the economy incorporating other industries servicing this concept.
From a preliminary viewpoint, we’ve identified a few industries that should be critical in evolution of the metaverse. Technology is obvious, but the metaverse requires more expansion and development from semiconductors, the financial sector, gaming, communications, and others.
5G should be another critical piece required to facilitate the vision of the metaverse. Connectivity to the metaverse will require faster speeds and near-zero latency. We have written extensively on the importance of this emerging technology and still view it as a critical emerging industry in the economy.
Digital currency in the metaverse is also a consideration, yet what this will look like remains in question. To be clear, we at MCF do not advocate investing in cryptocurrency. The speculative nature of the space still remains a major concern and presents unwarranted risk to investors. In addition, increased scrutiny from governments and regulatory bodies over crypto is also concerning.
Payments will be a part of the metaverse, but from our point view, it will require real currency to transact within these various platforms. Hypothetically speaking, a user may have to transfer funds from their bank account into their digital account housed at their preferred metaverse platform.
These are a few ideas that have come to mind as we contemplated the potential of the metaverse and where it stands as a concept already in motion. We can conclude it is leaping into a new phase.
As Zuckerberg points out, achieving the vision of the metaverse will be a lengthy process. We believe our model portfolio is well positioned to participate in this innovation. It is not to say that headwinds are not present when analyzing this concept. To briefly explain, privacy issues and recent revelations on the damaging impacts of social media are also important when considering the metaverse.
We will continue to monitor these new trends and look to our data driven approach to guide us in navigating existing and emerging sectors within markets. Innovation remains an important factor when considering financial markets and innovation unquestionably fosters growth.
Until the next innovation, I’ll see you in the metaverse.
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