The metaverse will open up a huge opportunity for chip makers like nvidia (NVDA 9.81% ) And Advanced Microsystems (AMD 5.80% )Because fueling this technological trend will require a lot of computing power to be provided by the CPUs (central processing units) and graphics processing units (GPUs) sold by these companies.
The good part is that Nvidia and AMD are starting to take advantage of the Metaverse, a concept that will allow people to interact in 3D virtual worlds from locations around the world. The company’s chips have already found their way inside platforms” (FB 2.86% ) A supercomputer, powered by artificial intelligence (AI), which should be one of the building blocks of metaverse.
However, if you had to pick one of these tech stocks to take advantage of the metaverse, which one should you buy? Let’s find out.
Investment Bank Queen It is estimated that by 2030, Nvidia could generate $140 billion in annual revenue and $28 per share earnings thanks to several catalysts, including the metaverse. The graphics card specialist is already seeing impressive growth in the video game and data center markets, and the metaverse should provide a good boost to its explosive growth pace.
These numbers indicate a significant improvement over Nvidia’s fiscal year 2022 revenue of $27 billion and earnings of $4.44 per share. It wouldn’t be surprising to see Nvidia achieve such ambitious revenue and profit forecasts by 2030, when the metaverse could revitalize its three major business segments.
First, Nvidia’s video game revenue may continue to grow at a meteoric rate in the future thanks to the metaverse. In fact, revenue from the virtual video game worlds in the metaverse is expected to reach $400 billion in 2025 from $180 billion in 2020, according to crypto asset management firm Grayscale.
Supporting these virtual game worlds, which will be served to a large number of players in real time, will require a larger investment in gaming hardware. Specifically, the market for gaming devices that support 3D virtual worlds is expected to grow from $63.5 billion in 2020 to $77.8 billion in 2024, according to third-party estimates. This should open up a strong opportunity for Nvidia to grow its gaming business, as the company controls 81% of the gaming graphics card market.
Second, Nvidia’s data center business is already benefiting from the metaverse. Meta Platforms will deploy 16,000 Nvidia GPUs into its AI Research SuperCluster (RSC) supercomputer by the end of the year. Meta indicates that this supercomputer will help him build the metaverse. In the future, it wouldn’t be surprising to see more supercomputers deployed to facilitate deployment.
As per a third-party estimate, the global supercomputer market is expected to register an annual growth rate of 9.5% until 2026. It is likely that these supercomputers will be loaded with more GPUs to speed up metaverse-related workloads. With Nvidia controlling more than 90% of the supercomputing accelerators market, the chip maker’s data center business may continue to improve.
The third Nvidia business that could benefit most from the metaverse’s proliferation is professional visualization. Segment revenue grew 109% year-over-year in the fourth quarter of fiscal 2022 to $643 million, while full-year revenue doubled to $2.1 billion.
Increased adoption of Nvidia’s Omniverse platform may continue to drive impressive growth in the sector as the company allows creators and companies to create digital twins and 3D designs that can be deployed in the metaverse. It should be noted that the Digital Twin Market is expected to register an annual growth rate of 58% until 2026; This could pave the way for future growth in the professional visualization industry.
AMD . case
Like Nvidia, AMD sells graphics cards that are deployed in data centers and video game applications, so it is targeting the same markets as Nvidia. However, as we saw above, Nvidia is the dominant player in these markets. As of last month, AMD controlled just 19% of the gaming graphics card market, and is a much smaller player in the GPU supercomputer market.
However, the exponential growth of the video game and data center markets thanks to the metaverse will also boost AMD’s business, as it will have a greater opportunity to exploit. It’s also worth noting that AMD has made headway in the data center GPU market with more supercomputers adopting their graphics cards.
Lisa Su, CEO of AMD, said on the company’s February earnings call:
We’re seeing increased customer engagement for leading HPC and AI GPUs in the data center [high-performance computing] The performance of our new MI200 accelerators, highlighted by several supercomputing wins and an expanded set of platforms are on track to be launched by Atos, Del [Technologies]And HPAnd LenovoAnd Great microphone [Computer]Others later begin this term.
On the other hand, AMD shares in Intel Corporation in the supercomputer processor market. According to a November 2021 report, AMD powered 73 of the top 500 supercomputers, a significant increase from 21 in the same period last year. Additionally, AMD server processors power the Meta AI RSC supercomputer shown above. This supercomputer has 4,000 AMD EPYC server processors, which means that AMD is involved in building the metaverse, as is Nvidia.
AMD has an advantage over Nvidia in the metaverse, as the latter does not yet have a CPU for sale; Grace’s therapist isn’t expected to arrive until next year. Another advantage of AMD is that it provides chips for Microsoft And Sony for their latest consoles. These two console makers are pursuing the opportunity to capture the metaverse in the video game market in different ways.
Microsoft, for example, announced that it would acquire Activision Blizzard For $68.7 billion in an effort to boost its presence in the Metaverse with a larger library of games. Meanwhile, Sony is said to be working on its next generation of virtual reality headsets, which should hit the market by the end of the year. These moves could help Microsoft and Sony sell more of their consoles and possibly give AMD’s business a good boost.
So, just like Nvidia, AMD can take advantage of the metaverse in many ways. Both companies target similar end markets within the Metaverse. And there’s no clear winner between the two, with Nvidia dominating a few key markets while AMD has an advantage in other areas. However, their ratings and expected growth rates may make it easier for investors to choose just one of these potential winners.
The Metaverse is now in its infancy, and any expectations regarding its impact on Nvidia and AMD’s growth should be taken with caution. However, one thing is for sure, that these two chip makers will play a significant role in the adoption of the Metaverse.
AMD offers the cheapest way for investors to take advantage of this upcoming big technology trend; It trades at 44 times ex-dividend and 28 times forward earnings and has a price-to-sell ratio of 8.6. Nvidia is more expensive with an income multiplier of approximately 69 and a future earnings multiple of 47; Price/sales ratio 25.
Analysts expect the two companies to post annual profit growth of 30% over the next five years.
So, based on its relatively cheaper valuation, AMD appears to be a safe bet on the Metaverse. However, Nvidia’s rich valuation seems justified, given the massive pace of growth driven by the current catalysts. Adding the opportunities associated with metaverses could make Nvidia stronger in the long run, so investors with an appetite for risk may consider taking advantage of the stock’s recent decline.
Monday AMD and Nvidia could prove to be the best stocks in the metaverse in the long run, although which one is better depends on the valuation that investors are willing to pay.
This article represents the author’s opinion, which may differ with the “official” endorsement position of a high-end consulting service Motley Fool. We are not homogeneous! Challenging an investment thesis – even if it’s our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.