Unity Software vs. Roblox
Two firms that might help make the Metaverse a reality are Roblox (RBLX -0.75%) and Unity Software (U -3.81%). Roblox is a platform that enables developers to create, publish, and operate 3D experiences and allows consumers to consume those experiences across various devices. Developers, creators, artists, engineers, designers, and architects, on the other hand, may use Unity Software to create interactive and real-time 3D content.
In other words, both Roblox and Unity Software are pick-and-shovel Metaverse plays since they both create 3D material like virtual worlds and digital twins. Which of these two metaverse stocks do you think you should purchase right now? Let's have a look.
Roblox's Argument
Roblox is already benefiting from the popularity of 3D virtual worlds. The firm had a strong year in 2021, raising revenue by 108 percent to $1.9 billion and increasing daily active users by 40 percent to 45.5 million. The company's daily active user base grew to 55 million in February, or 28 percent year over year.
It's also worth mentioning that Roblox users spent 41.4 billion hours on the site last year, up 35% from the previous year. The company's solid user base and engagement explain why big names like singer David Guetta and the NFL embrace it to grow their metaverse presence.
Meanwhile, Robux, the company's virtual currency, is already well-known. Users may use Robux to update their avatars in virtual worlds, with the virtual money being used to purchase stuff such as clothes, accessories, and even pets. Last year, Roblox users spent $2.7 billion on Robux, which is reflected in the company's bookings.
Roblox's ecosystem of 29 million developers, 11 million virtual experiences, a large user base, and popular virtual currency makes it ideal for brands looking to make a name for themselves in the Metaverse. Nike, for example, has already established a Roblox virtual environment. Roblox has also been used by businesses like Forever 21, Vans, and Ralph Lauren to enter the Metaverse.
According to a third-party prediction, the Metaverse will increase at a 47 percent yearly pace until 2029. As more people join the Metaverse, more businesses will be enticed to enter the virtual reality, expanding Roblox's potential market. This helps to explain why experts predict Roblox to develop rapidly.
Unity Software's Argument
Unity Software is best known for its Unity video game engine, which allows developers to build games that run on various platforms, including PCs, consoles, and mobile devices. Unity is currently concentrating its metaverse expertise on developing real-time 3D content for different sectors, including retail, architecture, automotive, and the construction of digital twins, among others.
The good news is that the company's non-gaming division is gaining momentum, indicating that it is already reaping the benefits of the Metaverse. In 2021, Unity claimed a 70 percent rise in non-gaming income. According to the February earnings conference call, Unity's non-gaming business represented 25% of the $326 million in sales earned by the "creative solutions" division in 2021. In 2020, the non-gaming business will account for 20% of the revenue generated by the creative solutions sector.
Significant organizations use Unity's solutions to generate digital twins, which are virtual 3D copies of real-world things. Hyundai Motors, for example, has worked with Unity to create a digital twin of a genuine factory to aid in plant management, productivity, and manufacturing process innovation.
Meanwhile, eBay is leveraging Unity's technologies to help "sellers present the real item they are providing with our exclusive interactive 360-view," according to the company.
Unity management mentioned several other partnerships on the company's most recent earnings conference call, indicating that its 3D rendering solutions are being used in various industries. Because the Metaverse is predicted to increase demand for digital twins and other 3D applications, Unity's solutions should ideally gain traction over time. For example, the digital twin industry will generate $48 billion in sales by 2026, up from $3 billion in 2020.
As a result, Unity Software's income has a lot of space to expand. The company produced $1.1 billion in revenue last year, up 44 percent from 2020. It plans to keep up its pace in 2022, with sales forecast to rise 35 percent to approximately $1.5 billion at the midpoint. Furthermore, analysts are bullish on the company's long-term prospects, expecting profits to expand at a 69 percent annual rate over the next five years.
But which metaverse stock is better?
Both Roblox and Unity are rapidly expanding and seem to be well-positioned to gain from the Metaverse. On the other hand, Roblox is the more cheap option for investors, with a price-to-sales ratio of 11.1. Unity Software is significantly more expensive at 23 times sales, although growing at a slower rate last year.
As a result, investors searching for a low-cost metaverse company can choose Roblox, which offers a good balance of excellent value and rapid development.
AMD vs. Nvidia
The Metaverse is likely to open up a massive opportunity for chipmakers like Nvidia (NVDA -3.31 percent ) and Advanced Micro Devices (AMD -1.90 percent ) since powering this tech trend will need a lot of computing power, which will be given by the CPUs and GPUs that these firms offer.
The great news is that both Nvidia and AMD have started to profit from the Metaverse, a concept that will enable people all over the globe to interact in 3D virtual settings. The businesses' chips have already made their way into Meta Platforms' (FB -2.11 percent ) supercomputer, which is planned to be one of the Metaverse's building blocks powered by artificial intelligence (AI).
But, if you were to purchase one of these tech stocks to profit from the Metaverse, which one would you choose? Let's have a look.
The Argument for Nvidia
On the strength of many catalysts, including the Metaverse, investment bank Cowen forecasts that Nvidia may generate annual sales of $140 billion and profits of $28 per share by 2030. The graphics card specialty is growing rapidly in the video gaming and data center sectors, and the Metaverse is projected to accelerate that pace even more.
Those figures represent a significant increase above Nvidia's fiscal 2022 sales of $27 billion and profits per share of $4.44. I won't be surprised if Nvidia meets those lofty revenue and profit targets by 2030 since the Metaverse has the potential to accelerate the company's three main business sectors.
First, owing to the Metaverse, Nvidia's video game income might continue to grow at a breakneck speed in the future. According to bitcoin asset management company Grayscale, income from virtual video game worlds in the Metaverse is predicted to reach $400 billion in 2025, up from $180 billion in 2020.
Supporting these virtual gaming worlds, which would be delivered in real-time to many players, will need a more significant investment in gaming gear. According to third-party projections, the market for gaming gear to enable 3D virtual worlds is predicted to grow from $63.5 billion in 2020 to $77.8 billion in 2024. Because Nvidia owns 81 percent of the market for gaming graphics cards, this should provide an excellent chance for the firm to expand its gaming business.
Second, the Metaverse is already benefiting Nvidia's data center business. By the end of the year, Meta Platforms plans to install 16,000 Nvidia GPUs in its AI Research SuperCluster (RSC) supercomputer. This supercomputer, according to Meta, will aid in the creation of the Metaverse. It's hardly unexpected that other supercomputers will be deployed to help with the deployment in the future.
According to a third-party forecast, the worldwide supercomputer industry will increase at a 9.5 percent annual pace until 2026. More GPUs are anticipated to be added to such supercomputers to speed up metaverse-related tasks. With over 90% of the market for supercomputing accelerators under Nvidia's control, the chipmaker's data center business will only improve.
Professional visualization is the third Nvidia company that might benefit significantly from Metaverse's growth. The segment's revenue increased by 109 percent year over year to $643 million in the fourth quarter of fiscal 2022, with full-year sales doubling to $2.1 billion.
The increased use of Nvidia's Omniverse platform, which allows artists and businesses to create digital twins and 3D designs that can be deployed in the Metaverse, is expected to keep driving significant growth in this area. It's worth mentioning that the digital-twin industry is predicted to increase at a 58 percent annual pace until 2026, which might pave the way for further professional visualization development.
The Argument for AMD
AMD, like Nvidia, provides graphics cards for use in data centers and video game applications. Thus the two companies are competing in the same areas. However, as previously said, Nvidia is the market leader in these areas. AMD had just 19 percent of the gaming graphics card market last month, and it's a considerably smaller position in the supercomputer GPU industry.
However, AMD's company will benefit from Metaverse's rapid expansion of the video gaming and data center businesses, as it will have a more significant addressable potential to tap into. It's also worth mentioning that AMD is gaining ground in the data center GPU market as more supercomputers use its graphics cards.
"We are seeing growing customer engagements for our data center GPUs based on the leading AI and HPC [high-performance computing] performance of our new MI200 accelerators, highlighted by multiple supercomputing wins and an expanded set of platforms on track to launch from Atos, Dell [Technologies], HP, Lenovo, Super Micro [Computer], and others later this quarter," AMD CEO Lisa Su said on the company's February earnings call.
In the supercomputer CPU market, on the other hand, AMD is gaining ground on Intel. According to a survey published in November 2021, AMD was powering 73 of the top 500 supercomputers, up from 21 the previous year. Furthermore, AMD server CPUs are powering Meta's AI RSC supercomputer, previously disclosed. That supercomputer has 4,000 AMD EPYC server processors, indicating that AMD works on the Metaverse with Nvidia.
In the Metaverse, AMD has the edge over Nvidia since the latter does not yet have a CPU on the market; the Grace CPU is slated to debut next year. AMD also benefits because it provides processors to Microsoft and Sony for their current consoles. Each of these console manufacturers are chasing the metaverse potential in the video game business in various ways.
For example, Microsoft has stated that it would buy Activision Blizzard for $68.7 billion to expand its metaverse footprint with a larger game catalog. On the other hand, Sony is said to be working on the next iteration of its virtual reality headset, which will be available by the end of the year. These changes may help Microsoft and Sony sell more consoles, and AMD's company may benefit.
AMD, like Nvidia, may profit from the Metaverse in a variety of ways. Within the Metaverse, both firms are aiming for comparable end markets. And there's no obvious victor between the two since Nvidia dominates a few critical markets while AMD has a competitive advantage in others. However, investors may find it simpler to choose only one of these possible metaverse winners based on their valuations and predicted growth rates.
The Verdict
The Metaverse is still in its infancy, so any predictions about its impact on Nvidia and AMD's growth should be taken with a grain of salt. However, one thing is sure: both of these chipmakers will play a significant part in adopting the Metaverse.
AMD is the cheapest opportunity for investors to profit from the following major tech wave; it's now selling at 44 times trailing profits and 28 times forecast earnings, with an 8.6 price-to-sales ratio. With a trailing earnings multiple of approximately 69 and a forecast earnings multiple of 47, Nvidia is more costly; its price-to-sales ratio is 25.
According to analysts, both firms are expected to boost their profits by 30% annually over the next five years.
As a result of its lower value, AMD seems to be a safe metaverse investment. However, considering the tremendous rate of growth fueled by its present catalysts, Nvidia's high value is reasonable. In the long term, the inclusion of metaverse-related potential might accelerate Nvidia, so investors with a risk appetite could consider taking advantage of the stock's recent dip.
In the long term, both AMD and Nvidia might be top metaverse stocks, but which one is better will depend on the value investors are willing to pay.
Meta vs. Meta Roblox
On October 28, Meta Platforms, Inc. (NASDAQ: FB) was renamed Meta Platforms, Inc. as Mark Zuckerberg and his team looked to the Metaverse as the company's next revolutionary phase of growth. Despite the prolonged effect of Apple's (AAPL) IDFA reforms, the business posted an excellent performance in the third quarter. These advertising headwinds, we believe, are just temporary and not systemic. Moreover, the corporation has telegraphed to work around these concerns over time.
Furthermore, the Metaverse is the company's long-term answer for designing an operating system that does not rely on the mobile internet. It's Meta's response to iOS and Android's (GOOGL) (GOOG) supremacy as the firm plots its course to a bright future.
Roblox's (NYSE: RBLX) goal is to build a metaverse for "human co-experience" that is fueled by user-generated content (UGC). Tencent's (OTCPK: TCEHY) chief strategy officer James Mitchell also recognized Roblox's metaverse aspirations, saying, "Now, I wouldn't claim that Metaverse is a genre."
The Metaverse is a broader possibility in which several types of games are played inside a single social graph and software package. When it comes to Roblox, it's undoubtedly a Metaverse for younger players. (Source: Tencent FQ1'21 earnings call)
We go through which of these metaverse stocks investors should acquire to get a piece of the gigantic metaverse potential while it's still in its infancy.
YTD Performance of FB vs. RBLX Stock
We'll talk about their YTD results starting on March 10 since that's when Roblox went public. After its March IPO, Roblox stock got off to a flying start, gaining about 45 percent YTD by June. Its popularity, however, faded fast, and the latest September/October pullback almost wiped away all of its gains. It has, however, made a tremendous comeback, with a YTD gain of 20.6 percent.
Meta stock's YTD gain (from March 10) was equally at 20.6 percent as of October 29. Notably, its stock had enjoyed a solid start to 2021, and it continued to do so as the year progressed. It had a YTD gain of more than 40% before losing steam during the current pullback. The stock price was influenced by the same weakness as plagued social media stocks. As a result, Facebook's YTD gain has dropped from the year's high. At the time, both stocks still lead the SPDR S&P 500 ETF (SPY) (SPY).
Furthermore, they trail the Invesco QQQ ETF's (QQQ) 22.4 percent YTD return by a hair.
Meta is Changing Itself by Expanding Its Metaverse Possibilities
Meta understands Metaverse's enormous business potential. Meta's mission, according to Zuckerberg, is to "assist the metaverse in reaching 1 billion individuals and hundreds of billions of dollars in digital commerce every day." While putting a monetary value on the potential is impossible at this time, The Information forecasts that the Metaverse will be worth $82 billion by 2025. That would be somewhat less than the $86 billion in revenue generated by Facebook in FY20.
According to The Information, the present metaverse possibility is still in its infancy. Roblox and Epic Games were among the first gaming platforms to provide "metaverse-like" experiences via gaming.
Meta predicts that the applications would be extended beyond the "gaming metaverse" to a wide range of consumers and business applications in the real and virtual worlds.
Nonetheless, gaming is the essential beginning point for the Metaverse's long-term tale. Facebook has embraced it via Oculus, which has now been expanded through Project Cambria. Meta
understands that in order to compete successfully with iOS and Android, it will need to develop the next computing platform.
With the rise of the mobile internet, these platforms will become even more entrenched. On the other hand, Meta thinks that its metaverse initiative will assist in accelerating a jump beyond these platforms' constraints.
The capacity to communicate with one another will be crucial. It's unclear how Facebook will do this. On the other hand, the corporation realizes that it will be critical to the success of its transformational endeavor.
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