The metaverse represents the next major evolution in computing. But where are the real wins occurring? Equity portfolio managers Doug Rao and Denny Fish explore the key considerations for investors interested in powering the virtual worlds of tomorrow. They explain the importance of separating hype from reality by focusing on the building blocks that are enabling innovation.

Key takeaways

• To us, the metaverse represents a more immersive extension of the internet where individuals can engage with friends, businesses and entertainment.
• While the metaverse tends to be defined on a consumer level, there are a host of ways that it can evolve for enterprise use cases that we believe could present even bigger opportunities.
• Because the metaverse requires hardware, cloud computing and other components that will allow for full immersion, we believe opportunity lies in the building blocks that will enable faster and more effective innovation.

View Transcript Expand

Doug Rao: We see the metaverse as an extension of the internet, and it’s a more immersive Internet and it will provide opportunities for people to enter smaller universes where they can engage with people, friends, business, entertainment.

Denny Fish: Whenever there’s a big theme like this, there’s a lot of potential opportunity but there are also a lot of ways to lose money. We always overestimate what can happen in a year and we underestimate what can happen in a decade. The important thing is trying to understand where the real wins are occurring, meaning where opportunity has been demonstrated [and] you’re seeing monetisation, you can envision a path towards really, really strong unit economics of the business and start to build up a case for what a business can become.

Rao: The metaverse requires more hardware, more cloud computing. It requires GPUs, which are these special chips that allow for rendering, and virtual physics that will allow for full immersion. So we’ve invested in semiconductor companies that are powering this and that require a massive amount of computing power. We’ve invested in a game engine that allows for digital rendering of the virtual worlds.

Fish: Most of what you hear is actually the metaverse defined on a consumer level, but there are a whole host of ways that the metaverse is likely to evolve for enterprise use cases, too, that could be as big if not bigger than the consumer metaverse is.

Rao: We know that progress doesn’t happen in a straight line. The metaverse is not a flip of the switch; you always have to separate out the hype from reality and what are investable ideas around that reality, and many times the hype comes well before the investable opportunities.

Fish: But we still need building blocks, we still need faster and more connected cloud computing and so the way we invest is we look for building blocks, and building blocks are what allows the innovation to take place.

Rao: I think what’s great about the culture here, the level of collaboration that we have across portfolio managers and analysts, which is great … [with] our time horizon, we’re able to take a long-term view. The depth of resources that we have to actually investigate, research and get after a number of these topics to figure out if they’re real or hype and to really think about it holistically.

Fish: We spend most of our hours thinking about how the world is evolving, how the world is changing, how we might be able to capitalise on that, how we might be able to invest our capital to help affect that change in the world. One of our jobs is to try to predict the future, and we’re investing in the companies that are continuing to build the building blocks today for the future.