Investing in the metaverse: New opportunities in virtual worlds

Morgan Stanley Wealth Management

12/16/21

Summary: The virtual realm known as the metaverse may be the world of tomorrow, but two technologies that enable it could create opportunities for investors today.

A passion for exploring worlds beyond our own seems part of the human experience. From circumnavigating the globe to visiting other planets, journeying to unknown realms ignites the imagination and propels both innovation and investment. And now, that’s no less true for travel to virtual worlds. Welcome to the “metaverse.”

Think of the metaverse as a digital realm of the future, like the next evolution of the internet. Fully developed, it could one day allow people to interact, work and play in immersive virtual spaces. And as major technology players embrace the idea—and, in some cases, peg the future of their business on it—it’s also creating opportunities for investors, namely in virtual reality (VR) and augmented reality (AR). In fact, as these technologies evolve to create increasingly connected digital experiences, total VR/AR spending worldwide is estimated to reach $72.8 billion in 2024, from $12 billion in 2020.1

Here’s a closer look at how VR/AR tech is being used today and how investors can participate in this technological shift.

Beyond gaming: New uses for VR/AR technology

For individuals, gaming and entertainment are the most obvious current uses for VR/AR applications, namely in the form of VR headsets and AR glasses. But they are also being used by event promotors hosting virtual live-music performances and museums offering virtual tours, more examples of a blend of the virtual and real worlds. Outside of entertainment, VR/AR is being used actively in commerce. Some uses include customers’ ability to virtually try on clothes or check out an automobile before purchasing.

What about for businesses? In industries with heavy machinery or hazardous work environments, VR/AR is being used to train workers on machine operation and safety protocols. In health care, these technologies have been used in intensive care units during the pandemic to bring additional expertise into the room without risking exposure to the COVID-19 virus. Another area ripe for increased VR/AR use is in, or rather out of, the office. Some companies host first-round interviews in automated digital formats, a method that can help streamline the hiring process and expand capacity to interview a greater number of candidates.

Expect to see VR/AR adoption outside of consumer sectors

Current VR/AR market share pie chart.

Source: International Data Corporation (IDC), Morgan Stanley Wealth Management Global Investment Office as of Sept. 21, 2021


The road to wider VR/AR adoption

Ultimately, the success of VR and AR technologies, and indeed the realization of the metaverse, will depend on technology advancement and user acceptance.

On the tech front, there are several challenges. Seamless virtual experiences currently require expensive hardware, whether a dedicated device, like today’s headset, or even clothing or cameras that can capture movement, with complex processing capabilities and enough power to support a virtual environment. In addition, huge amounts of data need to be transmitted wirelessly and stored, and users will need to be able to connect from anywhere, so expanding coverage of ultra-high-speed internet will be a prerequisite.

Of course, consumer willingness to set (virtual) foot in this brave new world will dictate how quickly and widespread it’s adopted. A key question is whether the applications are actually useful and accessible. Will they offer real, and clearly communicated, benefits, and add enough value to our lives?

Ways to play it

How can investors get exposure to these emerging technologies and the broader trend toward the metaverse? Some sectors to consider:    

Gaming: Morgan Stanley Research estimates that in 2020, COVID-induced lockdowns resulted in an acceleration of gamer adoption—about four years’ worth in terms of player bases, time spent playing and in-game revenue growth. Add to this the growth in games as the social media venue of choice for many individuals—and platforms that offer online multiplayer experiences—and the lines across gaming, entertainment, social media and the virtual environment begin to blur. Game developers and publishers are unlikely to squander what may be an opportunity to bridge into other forms of connectivity and keep their in-game content and experiences fresh.

Gaming is a secular trend that saw outsized adoption in 2020

Bar chart showing the number of US gamers from 2016 to 2020.

Source: MS & Co. Research, Morgan Stanley Wealth Management Global Investment Office as of Sept. 21, 2021


Consumer tech/communications: Many tech companies are developing products that allow users to interact in these virtual worlds. Think VR headsets and AR filters that can be overlaid with a smartphone camera, plus operating systems for PCs that are increasingly more connected. Communications and streaming platforms could also fuel the transition by offering their content in a virtual world rather than on a screen.

Cybersecurity/digital infrastructure: Several tangential technologies and trends also could benefit from continued VR/AR adoption. One of them is cybersecurity. A more digitally connected world will likely lead to more vulnerabilities for cyber threats, and the growing risk could mean opportunities for companies providing cybersecurity solutions. Increased digitalization will also require high-speed wireless connectivity powered by 5G, which could mean opportunities to invest in 5G mobile connectivity and digital infrastructure.

Of course, any investment decisions should ultimately reflect individual goals, timelines, and risk tolerance; but for investors looking to explore the virtual world, metaverse technologies may offer an exciting opportunity.

The source of this Morgan Stanley article, Investing in the Metaverse: New Opportunities in Virtual Worlds, was originally published on 12/16/21.

  1. Morgan Stanley Wealth Management, “AlphaCurrents: Virtual Reality, Augmented Reality and the Metaverse—Opportunities in Digital Worlds,” 9/22/21

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