Virtual-reality technology has come a long way from 1980s arcade games, and tech companies, such as Apple, Meta and HTC, are heavily investing in the future of VR. To help you understand what is going on and what we expect to happen in the future, our highly-experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest...

With Apple’s first virtual-reality headset, called Apple Vision Pro, set to go on sale in early 2024, the VR race is officially on. But it will be a marathon, not a sprint. Apple may sell only a few hundred thousand devices of what it calls "a revolutionary spatial computer" (because it blends digital content with the physical world) in the first sales year, maybe fewer, as the price is too high for mass adoption. 

The company’s focus: luring developers to produce apps and content, similar to how it built an ecosystem of iPhone apps. The device has garnered glowing reviews and is packed with high-end tech, much of it built in-house, including two low-power computer chips. Manufacturing is complex and drives up the price to $3,500, much more than other models from Meta (with its $999.99 Meta Quest Pro device) or HTC (and its $1,099 VIVE XR Elite). 

Apple (AAPL) and Meta (META) combined have invested over $100 billion in Virtual Reality research, per one estimate, so both companies are in this promising market for the long haul.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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The term “metaverse” sounds like something out of a science fiction novel. There’s a good reason for that – it is.

The term was coined in Neal Stephenson’s 1992 novel Snow Crash.

Like the similar term “cyberspace”, it describes a three-dimensional, immersive version of the internet in which human beings do business, play games, and socialize, represented by digital avatars.

And just as the term cyberspace did, the metaverse has made the leap from comics and sci-fi films to the boardroom and the business sections.

Facebook founder Mark Zuckerberg has said that within the next five years, he expects it to be described not as a social network, but as a metaverse company.

Meanwhile video game platform Roblox, whose users can sell their creations to each other for Robux – exchangeable for real world currency – became a multibillion-dollar company when it listed on the stock market.

This is not a new vision by any means. Virtual worlds such as Second Life, where individuals can establish businesses and buy digital property for real money, have been around for a few decades. But usage has largely been limited to enthusiasts.

The key difference today – according to proponents of the metaverse – is that not only has technology advanced considerably, but the pandemic has driven new demand for remote interaction.

For example, Facebook has unveiled technology enabling workers to meet and interact in a virtual office by donning virtual reality headsets.

Some dismiss this as little more than a 3D Zoom call – others argue that it offers a more natural way to interact in the working-from-home era.

Either way, it represents a big opportunity for a company like Facebook to collect even more data on its users.

But there are plenty of competing visions for the metaverse.

Many entrepreneurs in the crypto world favor the idea of an open, decentralized metaverse built on the blockchain, as opposed to one dominated by a single company.

As with its previous incarnations, the metaverse may turn out to be more hype than reality.

But with technology advancing all the time, it’s likely that at least some aspects of it will become everyday parts of our lives.

See you in the matrix!

Learn how to invest in the latest metaverse and technology trends by subscribing to our Investing Weekly e-newsletter.

From Big Tech boardrooms to podcasts and tweets, the metaverse hype is everywhere. However, as with many emerging technologies, excitement around the expected future impact often outshines its actual readiness for mainstream adoption.

But even among all the hoopla, it's foolish to dismiss Web3 and the metaverse completely. Within the next decade, emerging technologies might change life as we know it. In the same way, the television and the internet democratized access to information and entertainment, the blockchain and the metaverse will change the way we shop, game, and craft our digital identities.

Whether physical or digital, fashion is a core layer of our being. It serves as one of the purest forms of self-expression while acting as a direct extension of our emotions and beliefs. As humans, we care deeply about our appearance and as we spend more time in virtual environments, the same behavior is expected to continue. By 2030, Morgan Stanley estimates that the digital fashion market alone could be worth $50 billion.

While this prediction is ambitious, and far from a guarantee, industry leaders have recognized the potential and are already beginning to heavily invest in the trend:

• Nike (NKE) acquired RTFKT and announced the launch of CryptoKicks, alongside their own virtual world in Roblox (RBLX).
• Rebecca Minkoff partnered with The Dematerialised to release a collection of NFT dresses, hoodies, and accessories.
• Bob Iger invested an undisclosed sum into Genies, a company that produces metaverse-ready digital avatars for stars like Jennifer Lopez, Rihanna and Lil Nas X.

With that in mind, there's a compelling case that the winners of this emerging sector could be sound investments for years to come. But before we even think about investing, it's important to cover the basics of digital fashion.

What Is Digital Fashion?

Digital fashion is virtual 3D clothing designed with both humans and digital avatars in mind. Rather than using fabric and textiles, digital garments are created with special 3D computer programs like Blender and CLO3D.

Relative to traditional garment manufacturing, digital fashion is inexpensive and wildly sustainable. More importantly, it comes with zero creative constraints or production limitations. This is where the true beauty of digital fashion shines. The only limits are our imaginations. We don't need to be the same people online as we are in real life. We can be whoever we want to be.

According to Jackson Bridges, NFT Project Advisor and Showcase Guide at Alterrage, digital fashion allows for a new medium for individual expression.

"In the metaverse, we can decide our own identities compared to the physical world in which we cannot choose our own race, gender, or cultural background. Digital fashion builds upon this idea by enhancing self-expression outside of the constraints of the physical world and by leveraging technologies such as augmented and virtual reality. The ability for one to express themselves with limitless creative freedom unlocks doors for a true expression of one's identity," he shared in an interview with Kiplinger.

To date, digital fashion has been most prevalent in gaming, where gamers pay billions of dollars per year to outfit their digital avatars in the latest cosmetic skins. Epic Games, the company behind Fortnite, sold 3.3 million units of their NFL partnership skins, netting a cool $50 million in only a few weeks.

How Do You Wear Digital Clothes and Accessories in the Physical World?

Outside of gaming, digital dressing is the most practical way for shoppers to showcase their digital style. By altering photos and using advanced technologies like augmented reality and artificial intelligence, consumers can actually wear their digital garments.

For digitally-native apparel retailers like DRESSX, digital dressing is built into their business model. Customers who purchase digital garments from DressX can upload a photo to the platform to have themselves digitally dressed in their new look. For social media influencers who often spend thousands of dollars on an outfit only to return it moments after a photo is taken, wearing digital fashion offers a much more efficient and cost-effective alternative.

Snapchat (SNAP), a leader in augmented reality technology, has offered a variety of AR filters since its inception. Snap has also partnered with companies such as Prada and Ulta (ULTA) to offer customers virtual try-on experiences, which have resulted in substantial sales lifts.

To encourage more retailers to adopt AR-powered ecommerce, Snapchat has made its proprietary technology free to use. Now retailers can seamlessly integrate Snap's AR try-on technology and Camera Kit into their own mobile apps and websites.

Why Is Digital Fashion Important?

To fully recognize the importance of digital fashion, you must first understand the desire for digital identity and ownership. Among digitally native generations, there is strong demand for digital ownership and the ability to express our identity the same way we do in real life.

Based on a report from BoF Insights, approximately 70% of US general consumers (Gen Z to Gen X) rate their digital identity as important. And they're voting with their wallets, with 50% interested in purchasing a digital asset in the next 12 months (gaming skin, digital fashion, avatar, and/or NFT.)

While still incredibly early, digital fashion is positioned to be a significant revenue driver for apparel retailers. Over the last year, brands such as Gucci, Tommy Hilfiger, and Dolce & Gabbana have invested millions of dollars in opening virtual metaverse storefronts where they've sold a mix of digital fashion NFTs and NFTs redeemable for physical goods. The virtual stores also allow customers to shop through on-site ecommerce collections.

As explained by Nico Fara, a retail Web3 strategist and founder of Chief Metaverse Officer, virtual stores in the metaverse aren't replacing traditional retail channels, but are instead serving as a much-needed complement.

"In the same way that retailers need a brick-and-mortar or ecommerce store (Web 1.0) and a social media page (Web 2.0), they should have a metaverse presence (Web 3.0). Virtual stores in the metaverse are more efficient, immersive, and accessible than any other retail experience."

Like all new tech trends, there will be companies that invest in the hype for PR and quick cash. But there will be others that make digital fashion a core part of their future retail strategy. Whether the winners will be legacy fashion and tech companies, digitally native retailers, or a combination of both, only time will tell. But when industry players of this caliber all make a move, it's generally one worth paying attention to.

Imagine a day when, despite being thousands of miles apart, you and your grandchildren can put on visorlike headsets and “walk” together through a digital version of the Smithsonian, Times Square or even your local shopping mall. You’ll be able to watch movies with them or attend virtual reality “concerts” together and then hang out with the artists and other fans in a virtual “backstage” salon after the concert. You’ll be able to do this with your loved ones in real time, even though you’re on opposite sides of the world.

That’s the future of the metaverse!

Most of our retired clients remember back when Internet access started with that annoying screeching sound when you dialed in over your phone line. Since then, we’ve seen the Internet transform by leaps and bounds. But get ready, because the Internet as we know it is on the cusp of making a quantum leap. And that could have a big effect on our pocketbooks and our lifestyles within the next few years.

How We Got Here: Web 1.0 and Web 2.0

First, let’s do a broad overview of where we’ve been and how we got here.

Web 1.0 refers to the World Wide Web as it was up until about 1999. Amazon was just getting off the ground, and people were learning to use the Internet to advertise and buy and sell goods and services online. We saw the rise of rudimentary online banking, and the Internet was finally a daily part of consumers’ lives in a big way. But our experience with the Web was still largely passive. Most Americans were Web consumers. But very few were active participants. That changed with Web 2.0.

With Web 2.0, consumers all over the world became actively engaged in the greater Web community. It started with the explosive popularity of personal web logs (or “blogs,” for short). “Bloggers” were instrumental in disrupting and disaggregating traditional media. The rise of Wi-Fi, fiber-optic and broadband technology made mass video production and distribution possible for ordinary individuals (think “YouTube”).

Then, in about 2007, smartphones took all that technology – the capacity for ordinary people to both consume and create content – and put it in people's pockets. And companies like Facebook and other social media platforms gave us an easy way to form communities and share this content with each other.

Now Introducing Web 3.0 – The Metaverse

That brings us to today. Years of innovations in artificial intelligence, machine learning, graphics, data transmission, big data storage, video gaming and blockchain technology are about to transform our world as we know it.

Where our participation in Web 1.0 was passive and in Web 2.0 we became active, our participation in Web 3.0 will become immersive.

Remember the holodeck on Star Trek? Imagine strapping on a helmet and visor and being able to take the holodeck with you. And interacting with your family and friends as you do this.

Web 3.0 is already allowing users to be in the same space with other people in a virtual environment – a parallel digital reality called the metaverse. And it’s already happening.

In the metaverse, you and your grandchildren will be able to put on goggles and spend time together, doing activities such as “walking” through a digital version of the Louvre or visiting Miami Beach. You’ll be able to watch movies together and hang out wherever you want.

You’ll be able to do this in real time, even though you’re on opposite sides of the world, and even from a wheelchair or a nursing home.

All you will need is a good Internet connection and a virtual reality helmet or headset like the Oculus – made by a company owned by Facebook, which (did you notice?) recently changed its name to “Meta.”

JPMorgan Chase is the first bank to enter the metaverse with its virtual “Onyx Lounge.” On the lounge’s wall is a picture of the bank’s CEO Jamie Dimon.

The metaverse is an economy, but it’s a frontier economy with open space, something that always attracts all types of people to its limitless borders.

Combining the Physical and Virtual Worlds

We’re also already seeing elements of the virtual world popping up in the physical world. Some of you may have had children or grandchildren who enjoyed “hunting” Pokémon around your towns and cities. These Pokémon were digital creatures – virtual beings dropped into our physical space that were visible using a combination of cellphone and GPS technology.

Your kids hunted Pokémon using their mobile phones years ago. Today, you can already buy augmented reality glasses that enable you to “see” a parallel digital reality in the metaverse, even as you walk your dog down a city street.

Very soon – within the next few years – as you’re walking through a downtown parking lot, you may see people actively engaged in virtual sword fighting, “hunting” vampires or engaging in pitched laser tag battles. And here’s the kicker: “Life” in these digital environments will go on, even when you’re not playing.

In the near future, you will be able to spend entire days immersed in a virtual environment – shopping, exercising, playing 3D Dungeons & Dragons, exploring virtual museums and cities, re-enacting historic battles and more.

The Metaverse Economy

It is important to note that this article is for informational purposes. Our firm does not engage in or recommend the purchasing or sales of any type of cryptocurrencies.

The metaverse will be based upon a parallel digital economy – powered by blockchain and cryptocurrencies – in which users can buy and sell goods and services. This economy will include major brand names that are already purchasing prime virtual “real estate” and that are already building and selling space in virtual reality shopping malls.

As you read this, there is an invisible “land rush” occurring entirely in the digital space. Technology giants, major consumer brands and thousands of startups are raising billions of dollars to create a navigable digital reality. For example, Nike just bought a company that makes nothing but digital shoes that your avatar can wear while you’re in the metaverse.

Now here’s where it really gets wild: The virtual economy that will connect the metaverse will likely be built on a brand new blockchain application called nonfungible tokens, or NFTs. Early versions of NFTs are already making headlines in the form of crypto art, or more broadly, crypto media.

Crypto art is a digital version of a media product – a piece of art, a piece of music, a movie – that you can buy and sell “shares” in using the blockchain. The blockchain itself is the same networked computer system underlying Bitcoin and its somewhat lesser known competing digital currency, Ethereum.

$69 Million for an NFT Image!? An Explanation Why

The Internet wouldn’t be the Internet without the occasional insane, crazy, speculative bubble. And Web 3.0 is looking like no exception.

Case in point: Recently, a digital piece of art sold at Christie’s for a staggering $69 million! The image – created by digital artist Michael Winkelmann, also known as “Beeple” – is a collage of 5,000 images, one made each day over the course of 13 years. The price was an all-time high for an artwork that exists only digitally. Beeple’s collaged JPG was made in February 2021 as an NFT.

With an NFT, a secure network of computer systems records the sale on the blockchain, which gives buyers proof of authenticity and ownership. Many NFT transactions are paid using Ethereum tokens – including this one, in a first for the 255-year-old auction house Christie’s.

You might be thinking, why pay so much for a digital image? Well, imagine that you owned the actual Mona Lisa painting. You’d have a lot of options: You could sell it, loan it to museums or art shows for a fee, allow people to sell images of it in books or postcards, and more. However, if you only take a photo of the Mona Lisa, you don’t have the rights to do anything commercially with that photo, and you could be sued if you try to do so without permission.

Well, if you own the NFT version of the Mona Lisa, there is only one NFT of it available, and in the metaverse, that NFT probably would have a value to collectors or to businesses that would want to display it to attract visitors, or museums or galleries might pay to display it because there would be only one true NFT Mona Lisa image throughout the metaverse world.

Does that make a little more sense now?

The artist Beeple followed up his $69 million sale with another one: A hybrid sculpture/NFT that sold for $28.9 million. And another set of NFTs, called the “Bored Ape Yacht Club,” has already generated more than $750 million in trading volume.

The Real Value of NFTs, According to Mark Cuban

That’s the beauty of it. The value of crypto art, or NFTs, has nothing whatsoever to do with any artistic merit. Nothing.

If you look at these transactions simply as art sales, the pricing seems clearly absurd. But in the NFT world, depending how the digital token is structured, these aren’t merely art sales. You can structure an NFT in all kinds of ways.

For example, you can buy an NFT representing a unique 3D art “character” that represents you in the metaverse. In the case of Bored Ape Yacht Club, owning part of the NFT comes with additional perks, such as access to an exclusive Discord server where you can hobnob with other celebrities and jetsetters who also bought in, as well as preferred access to other NFT collectibles – which owners can presumably sell to later adapters, speculators or suckers – at a profit.

Moreover, everyone who buys a Bored Ape NFT representing a unique character also owns the intellectual property rights to that character.

Want to make an animated movie using the Bored Ape character that resembles Gwyneth Paltrow? You would need to buy the rights from Paltrow, who owns the NFT.

Billionaire investor and Shark Tank TV personality Mark Cuban has been aggressively investing in crypto ventures and in NFTs in particular. In a brilliant essay posted on his blog, Cuban sets out to destroy the conventional wisdom that “assets” need to have intrinsic value to function as stores of value.

“What happens when everything is digital? What happens when literally anything digital can be a store of value?” asks Cuban. “To so many the idea that a CryptoAsset could be a store of value is crazy. To them, there is no there, there. There is no intrinsic value. To them it is a digital representation of nothing, that crazy people are paying good money for. That is not the case,” Cuban asserts.

And that brings us back to Ethereum and smart contracts. Back to Mark Cuban:

“What is a digital good that can be sold? Literally ANYTHING digital. If it can be generated and saved in a file format, then it can be defined as part of [a] Smart Contract. That Smart Contract can be powerful with plenty of “If this than that” rules that allow for levels of control of that digital good which in turn can define its availability or scarcity, what happens when [it’s] sold, whether ownership is conferred, and my favorite and what I think [is] possibly the ultimate game changer, whether or not future sales pay a percentage of every sale to the person/company who originally minted the digital good.”

So maybe you don’t need to own a $69 million JPG collage from Beeple. And you probably don’t need to pay $1.3 million for your own Bored Ape character NFT, as pop star Justin Bieber did.

But these transactions are harbingers of the vast metaverse economy to come.

Lots of investors got wiped out in the South Sea Bubble of the 1720s, the radio stock craze of the 1920s, and the Internet stock bubble of the late 1990s.

But they changed the world, and huge fortunes have been made in each of these fields since.

The metaverse could change the world, too – very, very soon.

Neither AEWM nor advisers providing investment advisory services through AEWM recommend or facilitate the buying or selling of cryptocurrencies. Stuart Estate Planning Wealth Advisors is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Stuart Estate Planning Wealth Advisors are not affiliated companies. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to guarantees or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Media appearances are paid placements. The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way. 1236237 – 3/22

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In one of the most volatile episodes in stock market history, investors early last year took the shares of a company called GameStop (GME) on a wild ride that few would have expected for a business that's mostly a brick-and-mortar antique, the gaming version of a chain of video stores. Its shares went on an adventure that echoed the characteristics of the video games on its shelves: fantasy, violence and a romantic quest for justice and vengeance.

In real life, however, GameStop has had a lousy year, losing money once again. But the rest of the gaming sector has taken up the mantle. It's booming, becoming the backbone of the metaverse, a three-dimensional online environment that is likely the "next big thing" in consumer technology.

In 2020, partly because the pandemic kept Americans indoors, gaming revenues exceeded those of movies and sports events combined. Global gaming sales in 2021 are estimated at $178 billion and projected to rise to $269 billion by 2025. According to the consulting firm Accenture, one out of every three people in the world is a gamer.

No wonder so many big tech players are investing in the business. In 2000, Microsoft (MSFT, $306) launched the game-playing console Xbox, and in 2014 the company bought Minecraft, a survival-themed game, for $2.5 billion; Minecraft now has 131 million active monthly users. In January, Microsoft announced that, pending regulatory approval, it will spend $69 billion to purchase ActivisionBlizzard (ATVI), which has 400 million gamers a month playing such popular titles as Call of Duty and World of Warcraft.

Trying to stay abreast, Sony Group, maker of the wildly popular PlayStation console, announced Jan. 31 that it was buying Bungie, the private developer of the Halo and Destiny franchises, for $3.6 billion. (Stocks I like are in bold; share data are as of Feb. 4.)

Amazon (AMZN, $3,153) entered the market in 2014 with the purchase of Twitch Interactive for $970 million. Twitch lets gamers livestream themselves to viewers, who can watch and comment. Twitch has about 8 million active users. It dominates the market, but competition is growing from such big players as Alphabet (GOOGL, $2,866), with YouTube Live; and Meta Platforms (FB, $237), the former Facebook.

Facebook, walloped by a disappointing revenue projection for the first quarter of 2022, has thrown in its lot with the metaverse. It’s an idea with roots in Second Life, a computer game Facebook created in 2003. When I was a State Department official, my avatar gave an interactive speech in 2008 with the avatars of pro-democracy Egyptian students. In the metaverse, you can go to concerts, hold business meetings where you are immersed in, say, a construction site or restaurant, or drop down onto a virtual football field and run a few plays. The key for investors is that the metaverse depends on technology developed for video games.

How to Get in on Game Stocks

The metaverse, with its promise of interconnected worlds, may be the next frontier for gaming, but for investors, gaming poses challenges. You could buy the tech giants because gaming is a growing part of their businesses, but recognize that it is dwarfed by, say, online retailing, cloud computing and advertising. And many of the best developers of video games are private firms, so you can't invest in them. So, what are the best pure plays to take advantage of a craze that could still be in its infancy?

Look first to the companies that make the games. Many games today are so sophisticated that they can cost as much to make as the most dazzling Hollywood films. Grand Theft Auto 5 required 250 programmers and other employees of Rockstar working for five years at a total expense of $265 million. That's more than the films "Titanic" or "The Dark Knight Rises." The investment paid off. GTA5 has grossed more than any movie ever made.

Take-Two Interactive Software (TTWO, $175) owns the Rockstar label and has been gobbling up smaller developer firms, including Zynga (maker of FarmVille, a huge hit that was introduced as an app in 2009). Take-Two, with a market value of $18 billion, is solidly profitable, but shares have dropped about 20% in the past two years. With a market cap of $37 billion, well-managed, independent developer Electronic Arts (EA, $138), makes such games as Battlefield, The Sims and Madden NFL. It trades at a reasonable price-earnings ratio of 18.

Nvidia (NVDA, $243) makes semiconductors for a variety of sectors, but, as the world's largest designer of graphic processing units, its chips are popular in video games, including those that create virtual environments for immersion in the metaverse. In its latest quarterly report, Nvidia reported that gaming revenues rose 42% and are approaching half of the company's total sales. Still, shares fell by nearly one-third in the first three weeks of 2022, creating a buying opportunity.

Other metaverse stocks were also caught in the undertow of fears of higher interest rates and falling valuations. With a market cap of $30 billion, Unity Software (U, $109), which operates a development platform for the software that powers complex games, fell in price by about half from November to January, despite a surge in revenues. Over the same period, Matterport (MTTR, $8), which captures the feel of interior space with its 3D cameras, dropped by two-thirds, even though analysts see revenues rising in 2022 from $109 million to $160 million. The company is still unprofitable, and its $2.6 billion valuation is lofty, but if you can tolerate risk, Matterport could be a good long-term investment.

A few exchange-traded funds focus on gaming stocks. Global X Video Games and Esports (HERO, $27), with an expense ratio of 0.50%, was launched in 2019. Among the top holdings are NetEase (NTES, $101), a large Chinese developer, and Ubisoft (UBSFY, $12), a mid-cap French maker of such games as Rainbow Six Extraction and Just Dance.

With expenses of 0.55%, Van Eck Video Gaming and eSports (ESPO, $63) dates from 2018, with a small portfolio similar to that of the Global X ETF. Both funds lean toward high-profile stocks such as Nvidia and Electronic Arts, but one notable highlight of the Van Eck ETF is NEXON (NEXOY, $20), a Japanese firm with an emphasis on the fast-growing Asian market. Unlike many other gaming companies, Nexon's shares have been rising since last fall. Van Eck's top asset is Tencent Holdings (TCEHY, $62), the giant Chinese social media company that is, by some calculations, the largest gaming business in the world through its online offerings. Tencent has suffered from Chinese government intervention, so there's political risk to consider.

Game stocks carry the likelihood of substantial returns – perhaps, if regulators allow, through acquisitions by giants such as Alphabet, Microsoft and Sony. And their prospects, unlike the plotlines of many of their products, are built on a real-life foundation.

These stocks and funds stand to gain from the virtual-reality world known as the metaverse.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. Of the stocks mentioned here, he owns Amazon, Microsoft and Nvidia. Reach him at James_Glassman@Kiplinger.com.

Just as we were getting accustomed to the idea of the multiverse (or at least Marvel's version of it), another blockbuster "verse" hit the headlines. Facebook changed its name to Meta Platforms (FB), and as part of the social media company's attempt to rebrand and reinvent itself, announced it would be focusing on the next "next big thing": the metaverse.

What is the metaverse? Meta CEO Mark Zuckerberg wrote a lengthy post about it, but one paragraph sums up his ambitions:

"The next platform will be even more immersive – an embodied internet where you're in the experience, not just looking at it. We call this the metaverse, and it will touch every product we build."

It's a grand vision, and a growing number of Wall Street executives have a similar vision or want to at least find a role for their companies in these new platforms. But where will the actual investing opportunities in the metaverse lie?

Let's dig into the technology itself, then talk about the potential players.

What Is the Metaverse?

At its highest level, the metaverse is a virtual, online world. A digital space. It mirrors real life, but it isn't restricted by the rules of the real world.

You would interface with the metaverse using hardware such as your PC or smartphone, along with accessories such as virtual reality (VR) headsets and controllers. As a person with a presence in the metaverse, you would have an avatar (some sort of animated character) that visually represents you. Expect to be able to pay to "upgrade" that avatar, with virtual clothing and other options. The real world doesn't apply here, so you may be able to shell out for working wings, or that impossible physique. There will be virtual neighborhoods with virtual homes and virtual cars.

You won't just be chatting up your social media friends in the metaverse. You'll be shopping, visiting global attractions, and attending concerts. It's also possible you could be attending classes and even interacting with co-workers, like Zoom (ZM) on steroids. At some point, you may actually make your living in the metaverse, selling digital services or products.

Still having trouble visualizing the metaverse? In terms of where this could ultimately go, think of movies like Ready Player One that envision a future where people primarily interact with each other online, in a virtual world.

The real world is still there, but many people prefer to spend as much time as possible in the metaverse.

When Will the Metaverse Arrive?

It's already here; Meta is merely trying to take the metaverse to the next level.

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You might remember Second Life. This online world, where users can interact with each other and the world around them, launched in 2003 and still boasts hundreds of thousands of users. Second Life even was name-dropped by The Office, when it turned out that Dwight Schrute's Second Life alter ego was also a paper salesman named Dwight – but he could fly.

There have been many subsequent proto-metaverse offerings including Fortnite, Minecraft, Roblox, World of Warcraft, and Animal Crossing: New Horizons. Several of these are already hosting online concerts.

The list is heavy on video games but more recently we've seen expansion into other areas. For example, Nvidia (NVDA) created Omniverse, a shared virtual universe with virtual versions of real-life factories and buildings that's being used for design collaboration. Microsoft (MSFT) is preparing to roll out Mesh for Microsoft Teams, a combination of its mixed reality Mesh platform and Teams remote collaboration software. The company calls this "a gateway to the metaverse."

The metaverse as the platform envisioned by Mark Zuckerberg and others is not going to simply arrive one day. The foundations are already here and being built upon constantly. Instead of a launch, expect the metaverse to evolve from existing and future services.

A multiverse of metaverses, if you will.

As they become more capable and then begin to interconnect, the true metaverse will become reality.

How Can You Invest in the Metaverse?

These are early days, and that makes it difficult to divine which companies might strike gold with the metaverse.

We've created a list of top early stock picks in the metaverse space, but if you want to know broadly where to keep your eyes peeled, consider these possibilities.

• Retail, believe it or not, could find a place in the metaverse. "The next Amazon?" Maybe not. But a company selling virtual goods, or offering a killer virtual shopping experience for real-life products, could make hay. (And before you go thinking about that viral Walmart VR shopping video, know that it's actually from 2017!)
• Clothing and style brands are already staking out territory. Nike (NKE) has filed a series of patents aimed at making it the king of virtual sneakers and clothing in the metaverse.
• Tech companies will be working hard on accessories that take the metaverse experience to the next level. Think next-gen VR headsets, controllers and other equipment. Among current players with affordable, consumer-focused sets are Meta and its Oculus Quest, Sony (SNE) and its PlayStation VR, and HP (HPQ) and its Reverb.
• No matter who ends up driving development of the metaverse and what form it ultimately takes, we know that the No. 1 requirement is going to be unprecedented computing power – power that will largely have to come from the cloud. That means potential opportunities for Amazon.com's (AMZN) AWS and Microsoft's Azure, among others.
• You could go a level deeper and look at the companies producing the high-powered silicon needed to power those servers, such as Nvidia.
• The other given in the terms of the metaverse is that access will need high internet speeds with zero latency. Nothing will torpedo a metaverse experience more than low resolutions and lag. Broadband and 5G network providers are part of the equation; however, the critical piece of the puzzle is likely to be content delivery networks (CDNs). Companies such as Fastly (FSLY) and Akamai Technologies (AKAM) operate data centers across the globe that cache frequently accessed content. Local users are able to access this content much faster than if they were connected directly to a service like Netflix (NFLX) or Amazon from halfway across the globe. CDNs saw their business explode during the pandemic as everyone went online; that might prove to be a blip compared to the demands of the metaverse.
• Entertainment companies are working on their strategies. For example, in February, Disney (DIS) hired a new VP to oversee its metaverse ambitions. Their task according to Disney's CEO will be "connecting the physical and digital worlds" for Disney entertainment. With Disney involved in theme parks, the movie business, and streaming video, getting the metaverse right has high stakes.

Other opportunities might evolve over time, just as the metaverse itself does. The key to investing in this space will be to remain nimble, but also realistic.

Because the metaverse has become an instant buzzword, scores of companies are going to try to hop on board and connect their names with this emerging technology. But only some will actually execute and provide shareholders with tangible returns.

The metaverse is expected to see impressive growth over the next several years, creating a considerable opportunity for those invested in the best metaverse stocks.

The concept of the metaverse is far from new. Science fiction author Neal Stephenson coined the term in 1992 in his novel, "Snow Crash." This would inspire many other stories and movies, such as Ernest Cline's "Ready Player One." Steven Spielberg turned this into a hit movie in 2018.

But the metaverse is really no longer about science fiction or Hollywood, rather it has become a reality. Consider that virtual reality (VR) headsets can provide realistic experiences in virtual worlds.

Don't count the metaverse out

True, the metaverse has presented challenges for some companies. Microsoft (MSFT), for instance, has reportedly shut down or pared back its metaverse initiatives to focus on artificial intelligence (AI).  And Walt Disney (DIS) closed its division that was focused on next-generation experiences, which included the metaverse. 

Despite all this, the metaverse should not be counted out. According to research from Contrive Datum Insights, the market is worth more than $50 billion and is forecast to reach $1.3 trillion by 2030. This works out to be a stunning 44.5% compound annual growth rate.

"We're convinced the Metaverse represents the next iteration of the internet," said Tejas Dessai, AVP and research analyst at Global X. "As users continue to spend more time online and as the broader economy gets digitized, consumer tech will have to evolve to service emerging user demands – creating room for deeper participation via immersive experiences, multi-modal input,and intuitive interfaces."

How we chose the best metaverse stocks

For investors, there are no pure-play metaverse operators. However, there are some companies that should get a boost from this technology. The key when choosing the best stocks to buy is to focus on those that are set to benefit the most from this new technology. 

With that in mind, here are eight of the best metaverse stocks and one exchange-traded fund. 

Data is as of May 12. Analysts' consensus recommendation courtesy of S&P Global Market Intelligence. Stocks listed in reverse order of analysts' consensus recommendation.

• Industry: Internet content & information
• Market value: $13.9 billion
• Analysts' consensus recommendation: 2.93 (Hold)

Snap (SNAP, $8.55) isn't the first stock that comes to mind when thinking of the best metaverse stocks. Snap CEO and cofounder Evan Spiegel has said before that does not like the term "metaverse," yet he still is pursuing many of the core concepts of this category.

The big difference between the two executives is in the approach. Spiegel is more interested in AR, where the user is still part of the real world. It's not completely virtual.

Keep in mind that Snap is a pioneer in augmented reality via its Camera platform. This includes both hardware – such as Spectacles, which are AR glasses – and software.  There are over 250 million users that use this technology everyday.  

In the meantime, SNAP is integrating sophisticated generative AI into its AR platform. The company is a strategic partner with OpenAI and has leveraged GPT-4 to create a new service called My AI, which is available for Snapchat+ paid subscribers. "My AI can recommend birthday gift ideas for your BFF, plan a hiking trip for a long weekend, suggest a recipe for dinner, or even write a haiku about cheese for your cheddar-obsessed pal," said Snap in a press release.

It's true that Snap has struggled both on and off the price charts during the past year as advertising budgets have tightened. And not everyone is a fan of the communication services stock.

"Snap faces increasing competition for the slow-growing or even shrinking pool of digital advertising dollars, and its poor results contrasted with growth at rival Meta," says Argus Research analyst Jim Kelleher. "Given weakening digital ad-spending trends, along with Snap's inability to adapt to changes to ad tracking on Apple iOS that have hurt advertiser demand, we believe a HOLD rating on SNAP remains appropriate at this time."

However, it should be noted that the company has made tough decisions to restructure its operations. There has also been a retooling of its ad platform, such as for improving conversations and quality of engagements. Such actions will position the company to better monetize its large user base as the market starts to get back on track.

• Industry: Electronic gaming & multimedia
• Market value: $23.7 billion
• Analysts' consensus recommendation: 2.63 (Hold)

Roblox (RBLX, $39.36) is a pioneer of virtual worlds. Founded in 2004, the company allows users to create their own 3D immersive experiences and interact with their friends.  

The system has three main components. Roblox Client is for users to explore virtual worlds; Roblox Studio is a powerful set of tools to build, publish and manage 3D experiences; and Roblox Cloud is a sophisticated infrastructure platform.  

The company even has its own virtual currency, called Robux. This is a way to encourage users to create engaging experiences. In fact, there are some members who make a living operating their virtual worlds.

During the latest quarter, the average daily active users (DAUs) came to 66.1 million, up 22% year-over-year. The hours engaged were 14.5 billion, a 23% increase over the year prior. 

With its large audience, Roblox has been successful in attracting top-notch brands. The company has partnerships with the NFL and FIFA, as well as entertainers like Mariah Carey and Elton John. 

Roblox has been investing heavily in innovating its platform, and the company's vision is to create a next-generation communications system. To this end, Roblox has introduced features for voice, eye and arm tracking, and facial animation.  

Generative AI is likely to be an important factor for the growth as well. Roblox recently launched tools that allow for the creation of virtual worlds by using natural language prompts.  This will go a long way to make it possible for anyone to become a creator in the metaverse.

True, RBLX is another one of the metaverse stocks with a consensus Hold recommendation from analysts. Oppenheimer analyst Martin Yang sees "risks to [the company's] long-term growth outlook, namely, the ability to improve its content quality to reach older and more lucrative audiences." Yang has a Perform rating on RBLX stock, which is the equivalent of Hold.

However, there are plenty of bulls to be found. "We believe the reason to own shares is the amount and trajectory of engagement the platform generates and the future monetization opportunities are not fully appreciated by the market," says Needham analyst Bernie McTernan, who has a Buy rating on Roblox.

• Industry: Telecom services
• Market value: $158.2 billion
• Analysts' consensus recommendation: 2.61 (Hold)

It may seem odd to have Verizon Communications (VZ, $37.59) on a list for metaverse stocks. What does this Dow stock have to do with this industry?

Well, Verizon is actually a critical part of the ecosystem.  

"5G and technologies like mobile edge computing are a critical part of the ability to support fast, data-intensive experiences on the go," said Tal Elyashiv, founder and CEO of venture capital firm SPiCE VC. "The metaverse experiences involving 3D and augmented real applications, which overlay visuals over a user's real-world vision well as the need for smooth transition between the real world and the metaverse in real time will require the ability to deal with huge quantities of data and edge computing capabilities that are not possible given today's mainstream network and mobile phone technologies."

Then it won't be a surprise that Verizon has been making moves into the metaverse. Last year, the company announced a partnership with Meta Platforms (META). While the details of the arrangement are vague, it seems likely that Verizon's 5G UWB (Ultra Wideband) technology will be critical. This allows for low-latency broadband access, which will be ideal for metaverse applications.

• Industry: Software – application
• Market value: $11.2 billion
• Analysts' consensus recommendation: 2.50 (Buy)

Unity Software (U, $29.65) is a leader in tools for designers to create interactive 3D experiences. Customers range from developers to artists to designers.

Unity's software comes in two main versions. Create Solutions allows for the development of real-time 2D and 3D content. There are also tools for animation, audio, and user interfaces.  

There is also Grow Solutions. These provide for improving the acquisition, engagement, marketing and monetization for user bases. The focus is primarily on mobile games. Unity has its own ad network, but also integrates with third-party platforms.  

While gaming is a critical business for the company, there are other verticals that will help with the growth. These include film, retail, auto, engineering and construction. 

The Unity platform is definitely robust. It accounts for about 3.9 billion monthly active users (MAUs) and 70% of the top 1,000 mobile games have been written with the company's tools.

According to Unity CEO John Riccitiello, he considers the metaverse to be the next version of the internet, but it will not be just a handful of virtual worlds. Instead, Riccitiello believes there will be many metaverses, each catering to certain categories. They will be real-time, interactive and highly immersive.  

If this vision winds up being reality in the coming years, this will bode well for Unity – and for investors seeking out the best metaverse stocks.

• Industry: Internet content & information
• Market value: $597.3 billion
• Analysts' consensus recommendation: 1.88 (Buy)

In October 2021, Mark Zuckerberg changed the name of Facebook to Meta Platforms (META, $233.81). The move signaled a major strategy shift for the social network, with the company's focus now on the metaverse.

It was a bold move, but it has been difficult. Wall Street is skeptical and this has weighed on Meta's stock price. It also did not help that tech stocks came under pressure as interest rates spiked.

Regardless, Zuckerberg remains confident in the prospects of the metaverse – at least for the long term. He certainly understands that the company needs to evolve to stay competitive. Afterall, the tech industry is littered with companies that have failed to do so, including Yahoo! and Myspace.

Meta certainly has significant advantages for its metaverse strategy. The company has various franchises like Facebook, Instagram and WhatsApp that have roughly 3 billion MAUs.

Then there is the VR hardware business, with an installed base of about 22 million headsets.  Later this year, Meta plans to release the next generation of its systems. There are also plans for AR (augmented reality) glasses.

With the emergence of ChatGPT and GPT-4, Meta has been redirecting its resources to generative AI. Yet this is actually good news for the metaverse business. Generative AI will be critical for building interactive environments.

Zuckerberg's theme for this year is "efficiency." He initiated several rounds of layoffs and has been flattening the organization structure. This is also good news for one of Wall Street's best metaverse stocks. It means that the focus is more about commercializing the metaverse technology – not experimentation with it.

• Industry: Semiconductors
• Market value: $118.6 billion
• Analysts' consensus recommendation: 1.87 (Buy)

Since 2015, Qualcomm (QCOM, $103.62) and Meta have partnered on creating virtual reality chips and systems, but this important relationship got a boost last year. The two firms entered into a multi-year strategic agreement to develop metaverse experiences with Qualcomm's Snapdragon XR platform and Meta's Quest system.

This deal is likely to lead to highly immersive VR headsets. "Qualcomm, as a leader behind developing 5G capabilities, stands to dominate a huge market share as a provider of chips for 5G based AR/VR capabilities for Metaverse devices," Elyashiv said.

QCOM has the advantage of a massive set of intellectual property assets. The company has thousands of patents for critical technologies for 5G, RF systems, Wi-Fi networks and AI.  These will help with the needs of the metaverse for low latency, as well as work across devices, the cloud and the edge.  

According to a blog from Qualcomm: "We view the metaverse as a persistent spatial internet with personalized digital experiences that span the physical, digital, and virtual worlds."

Qualcomm has also set up a $100 million fund for the metaverse. The focus will be on cutting-edge startups that are developing foundational technologies in the market.

• Industry: Consumer electronics
• Market value: $2.73 trillion
• Analysts' consensus recommendation: 1.78 (Buy)

In an interview in late 2022, Apple (AAPL, $172.57) CEO Tim Cook showed skepticism toward the metaverse. Part of this uncertainty was that the concept has not been well-defined.  

But Cook is still interested in various technologies like VR and AR, all of which are essential to the metaverse. Consider that Apple is expected to announce a new headset at the upcoming WWDC event in June. Wedbush analysts estimate the price tag on those will about $2,500.

The details are sketchy, though that's no surprise. AAPL definitely has a long history of being secretive.

But Cook has still hinted at some of the capabilities Unlike a bulky VR headset, the new system will likely be much lighter. Yet it will still allow for deeply immersive experiences.  

"And so it's the idea that there is this environment that may be even better than just the real world – to overlay the virtual world on top of it might be an even better world," Cook recently said in an interview with GQ. "And so this is exciting. If it could accelerate creativity, if it could just help you do things that you do all day long and you didn't really think about doing them in a different way."

All in all, an Apple VR/AR headset should make for a cool demo. It could also encourage inspiration for the development of new apps.

A key strategy for the blue chip stock is to bolster its services business. In the latest quarter, the unit posted record revenue of $20.9 billion and there were over 975 million paid subscriptions. A new breakout device could help propel Apple's services business.

• Industry: Semiconductors
• Market value: $714.4 billion
• Analysts' consensus recommendation: 1.67 (Buy)

The metaverse requires cutting-edge chip technology to allow for the immersive graphics and high performance. This is why Nvidia (NVDA, $283.40) is positioned nicely for this opportunity – and on this list of the best metaverse stocks. 

"NVDA is an enabler of the metaverse, by that I mean they provide much of the plumbing that the metaverse is built on," said Matthew Stith, portfolio manager and director of equity research at Bartlett Wealth Management. Stith points to the fact that Nvidia is a market leader in the production and distribution of graphic processing units, and that an important end market for the company's graphic cards is gaming. 

"Gaming is and will continue to be a big piece of the metaverse," Stith says. "In addition to gaming NVDA's products are sold to data centers which support the metaverse work-loads."

At the heart of the metaverse strategy is the Nvidia Omniverse system that allows for the creation and management of immersive experiences. For example, it can simulate physical behavior, whether for human activity or materials. There are also features for real-time path tracing and AI-powered search.  

But the Nvidia Omniverse is not just for games. It is also for the development of sophisticated industrial applications.  

Recently, the semiconductor stock announced an agreement with Microsoft to integrate the Nvidia Omniverse on the Azure Cloud. This will make it easier for enterprises to create digital twins for advanced simulations and leverage sensors for IoT (Internet-of-Things).  

• Assets under management: $2.2 million
• Expenses: 0.50%, or $50 annually for every $10,000 invested

Staying abreast of the developments of the metaverse isn't always easy. This is why an exchange-traded fund can be a good option for investors in that it provides exposure to metaverse stocks, but also allows for diversification.

One option is the Global X Metaverse ETF (VR, $22.39). The portfolio extends across the many parts of the ecosystem, including with chipmakers, creator platforms, payments systems and infrastructure.  

To be included in the fund's portfolio of about 40 stocks, a company must generate at least 50% of its revenues from metaverse business activities. Holdings can also include "pre-revenue metaverse leaders," or those that have primary business operations in the metaverse, but do not currently generate revenue from those activities. 

Top holdings at present include several names on this list like Meta Platforms and Nvidia, as well as online gaming company NetEase (NTES) and Japan's Nintendo (NTDOY). 

Roughly half of the portfolio are companies based in the U.S. However, there is also high exposure to metaverse stocks in Japan (21%), China (14%) and South Korea (9%).

Given that the metaverse is still in its early stages, it should be no surprise that VR is fairly new, having been launched in April 2022. The current expense ratio is 0.50%.

Learn more about VR at the Global X provider site.