‘Metaverse stocks’ mean shares in firms that are expected to gain from the metaverse that everyone is talking about at present. Investors are scrambling to get in on the ground floor. But it’s not obvious what will and what won’t thrive in this new arena. Facebook owner Meta is a prominent metaverse stock but has already plummeted in value. That’s why I’m taking an interest in companies needed to build the metaverse’s infrastructure.
Cryptocurrency
One metaverse stock involves cryptocurrencies. I laughed at the idea when I first heard about Bitcoin in 2013, assuming it was a craze that would simply fade away. Boy was I wrong. There are still many nay-sayers. But as more and more institutional investors include cryptocurrencies in their portfolios, I can’t help but believe they’re here to stay. So, I’ve decided to add Argo Blockchain (LSE: ARB) to my portfolio.
In basic terms, ARB is a crypto-mining service provider. That means it owns and manages the computer servers required to keep track of blockchain transfers. Argo is compensated in newly created Bitcoin, the most valuable cryptocurrency in the market.
Following a 700% increase in December 2020, the company’s stock price fell in 2021. It is presently trading at 75.69p and is expected to fall further in the immediate term as Bitcoin’s value drops and cryptocurrencies possibly enter a bear market. But I’m not worried. Argo Blockchain will continue to accumulate Bitcoin until the next ‘halving event’ in 2024. The number of new Bitcoins created will be halved once this occurs. This is part of a procedure designed by Bitcoin’s developer to keep inflation under control. A bull market is usually triggered by this supply shock.
The biggest unknown is whether Argo blockchain will last until 2024. The company’s cost of revenue is uncomfortably high. It has only been profitable since 2020. It should have enough cash to withstand the next downturn market if it sells its Bitcoin now, but it’s a risk I need to keep in mind.
Metaverse computing power
Without the computer power to keep it operating, the metaverse can’t function. So, I’ll be including Nvidia (NASDAQ: NVDA) in my portfolio. From GPUs to transistors and the software that runs on them, Nvidia produces and manufactures numerous critical components that make computing possible. Nvidia stock is presently trading at $251, up 100% from this time last year and over 700% since 2017. I’m concerned that some of this is due to investor euphoria. The stock’s price-to-earnings (P/E) ratio of 77.51 is alarmingly high. I’m not usually comfortable with anything above 20, but a comment from Wells Fargo analyst Aaron Rakers has allayed some of my fears: “We estimate that the metaverse could equate to a $10bn incremental market opportunity for Nvidia over the next five years.”
Normally, I’m wary of overly optimistic projections. But there’s no way of knowing how huge the metaverse will become. It may either break apart or open up a whole new universe of possibilities. The sky’s the limit when it comes to technology.
I’d love to be a part of it if it turns out to be the latter.
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The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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