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David Stevenson: Apple not Facebook could be the killer bet on the metaverse

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The announcement that Facebook is going to change its name to Meta Platforms generated a collective groan among my peers, especially those sci-fi nerds for whom the concept of the metaverse online has been common currency for at least a decade (check out Neal Stephenson’s books). For me though, the announcement had an added personal twist.
One of my oldest friends – a proper tech nerd – has been touting the enabling technologies behind the metaverse for decades. He was into virtual reality (VR) in the 1980s and 1990s and I can vividly remember him saying those infamous famous words: ‘This’ll be the next big thing’.
Trying on his headset and zooming through countless virtual worlds, all I remember thinking was that the headset was bloody uncomfortable, that I felt dizzy and that the virtual worlds weren’t terrifically exciting.My friend is no longer in the VR business, but I think it is fair to say that virtual reality (full on headset), augmented reality (think glasses with a display screen) and the rise of virtual worlds online have proved a corporate graveyard for many an ambitious tech titan. Just like nuclear fusion, it’s always nearly there.
Well, maybe this time we are approaching ‘that moment’ when it will be the next big thing. Why? A number of signs suggest that the serious money is lining up behind the metaverse. Giant US investment bank Morgan Stanley has just released a spate of reports – ‘The Next Big Theme – Metaverse’ by Edward Stanley is one summing up the tone nicely – which highlight in detail why we need to think about this new world emerging.
According to Morgan Stanley, the metaverse in a nutshell is: ‘A virtual world for immersive experiences that is persistently available and where users can explore vast numbers of experiences concurrently. Within these experiences, people across the world can meet, play, watch, trade and learn across millions of experiences.’
The enabling technologies behind this catch all term include augmented reality (those glasses again), virtual reality (think Oculus headsets worn by gamers), virtual gaming worlds and ‘digital twin’ technologies used by big corporates to manage physical assets online.
The immediate reaction of most paid-up cynics – me included – is to wheel out all the old doubts and point to all the failed next new things. But there are tangible signs that maybe ‘this time is different’. There are now real world applications and hard money being invested in the next great leap in the immersive electronic experience. In no particular order, I’d highlight the following:
A sure-fire way of figuring out what might become the next big thing in investment land is to see if there’s an exchange-traded fund that is based on a thematic. And surprise, surprise, there is. In the US a specialist issuer called Roundhill has launched, guess what, the META ETF.
In the space of 20 weeks since inception, the assets of this fund have increased from $50m to $260m. Top holdings in the fund include some well-known names such as Nvidia, Microsoft, Autodesk, Amazon and Tencent, as well as less familiar names such as Roblox and Unity Software. And of course, the newly-coined Meta Platforms
It’s not hard to see why money has flowed into this fund. Of course, there’s the Facebook rebrand, and the obligatory ‘forecasts’ of exponential growth. The Morgan Stanley report foresees ‘a base case VR hardware market size of $60bn by 2030 and >$250bn by 2040 with the lion’s share in [consumer sales] where the “killer apps” are beginning to emerge’. Within augmented reality they believe we are fast ‘approaching lift-off’ where anyone with a smart phone can plug in.
But the likely answer to why this could now be ready to take off after decades seems to be…Apple.
If anyone is going to take VR, AR and the metaverse into the mainstream, it’s our friends from Cupertino, who’ve got hundreds of millions of consumers worldwide to overpay for a phone, tablet and watch (I have all three). Apple specialises in making ‘exciting’ technology mainstream (if not quite affordable). And the signs look promising for VR and the metaverse.
Apple for instance has ‘introduced advanced 3D sensing LiDAR technology in its high end iPhones and iPads to better measure the distance of planes in a 3D world’, according to Morgan Stanley. The report adds: ‘It’s rumoured that Apple is in the process of developing its first generation of AR/mixed reality glasses, with a launch expected in late 2022/early 2023.’
One hopes that Apple will be giving real thought to the challenges. Going back to my old friend’s headsets proudly displayed in his home office, the ‘form factor’ needs fixing. In other words, it’s got to feel comfortable, look cool and work. It’s also got to make sense financially and the content it gives access to needs to be compelling enough to shell out the money.
What of the investment implications if everything lines up? Well, I suppose it’s a safe bet to say that Apple might find the new category killer it’s been looking for. While Facebook/Meta Platforms looks to be taking this deadly seriously and, trading at 20 times earnings, isn’t insanely overvalued in stock price terms.
I also can’t help but thinking that Microsoft will maintain its grip on business-to-business (B2B) applications through this, and it has been the essential tech stock to own for decades now. I like Silicon Valley-based Roblox as a radical disrupter, but the Morgan Stanley report also highlights some ‘old world’ businesses that might just do well if this space takes off. Those include Entain (interactive entertainment), EssilorLuxottica (wearables world), and Samsung SDI (materials behind AR and VR, plus a stake in Samsung Display).

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