Here are 2 safe Metaverse stocks for risk-averse investors

These tech companies could benefit in a big way from the creation of the metaverse, but they're already highly profitable without it.

| More on:
Virtual goggles

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Contrary to popular belief, the metaverse is not a new notion. The term was coined by bestselling author Neil Stephenson in his science fiction novel Snow Crash all the way back in 1992. That said, there's no doubt that the concept has been generating more headlines of late as a host of businesses race to cash in on this idea of a persistent 3D virtual world backed by technologies including virtual reality (VR), augmented reality (AR), artificial intelligence (AI), and blockchain.

Generally speaking, investors tend to view metaverse-centric companies such as Roblox Corporation (NYSE: RBLX) and Unity Software as riskier investments, but there are some exceptions. Let's have a look at two safer stocks that offer investors a great chance to profit from the creation of the metaverse. And by safe, I mean these companies are already strongly profitable and cash-flow positive, but still have tremendous upside potential in the metaverse arena.

1. Nvidia 

Nvidia's (NASDAQ: NVDA) graphics processing units (GPUs) and system-on-a-chip products are widely relied upon for gaming and 3D simulation, cryptocurrency mining, and the development of other business applications, many of which will be foundational to the metaverse. Likewise, its on-the-rise NVIDIA Omniverse platform has a chance to revolutionize the world as we know it. In essence, Omniverse is a platform designed for 3D real-time simulation and design collaboration. For example, BMW Group has used the platform to design a future car factory, creating and simulating an exact "digital twin" of the facility. Between Nvidia's hardware and its Omniverse platform, it's one of the companies with the most potential upside in the metaverse.

In its fiscal 2023 first quarter, which ended May 1, Nvidia's total sales soared 46.4% year over year to $8.3 billion, and its adjusted earnings per share increased 49.5% to $1.36. On the profitability front, its adjusted gross and operating margins expanded by 90 and 255 basis points, respectively, to 67.1% and 47.7%. During the quarter, the tech giant also generated $1.4 billion in free cash flow, bringing its total over the past 12 months to $7.9 billion. As of the end of the quarter, Nvidia had $20.3 billion in cash and marketable securities on the books. For the year, Wall Street analysts expect the company's revenues and earnings to climb by 23.9% and 20.3%, respectively, to $33.3 billion and $5.34 per share.

Those are rock-solid growth rates, and given that its shares have plunged by 36% since the start of 2022 and its current price-to-earnings ratio of 50.9 is well below its 5-year average of 59.0, Nvidia appears to be a smart investment today. 

2. Meta Platforms

As evidenced by its name change from Facebook to Meta Platforms (NASDAQ: META), this company is fully committed to its metaverse transformation. The social media giant's Reality Labs business segment is focused on developing VR and AR hardware and software, such as its Oculus Quest 2 headset, in addition to other metaverse platforms like Horizon Worlds. In the second quarter, Meta's research and development spending rose by 42.6% year over year to $8.7 billion as it continued to ramp up its investments in the space. Meanwhile, Reality Labs booked a $2.8 billion operating loss, wider than its $2.4 billion loss in the same quarter a year ago.

It will take time for the company's metaverse plans to come to fruition, but investors shouldn't fret. The social media king has $40.5 billion in cash and marketable securities on the books, and has generated $35.8 billion in free cash flow over the past year. And its revenue from advertising -- the backbone of its business -- totaled $28.2 billion in the quarter, equal to 98% of total sales.

In short, Meta is well-funded to further its metaverse ambitions, all while enjoying a steady stream of income from its world-class ad business via its Facebook platform. Today, the Facebook platform boasts 2.9 billion monthly active users, equal to more than one-third of the global population. And similar to Nvidia, Meta has had a rough year in the stock market up to this point. Its shares have fallen by about 50% since the beginning of 2022. That has dragged its price-to-earnings ratio down to an all-time low of 13.6, well below its five-year average of 27.9. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Luke Meindl has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms, Inc., Nvidia, and Roblox Corporation. The Motley Fool Australia has recommended Meta Platforms, Inc. and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A man looking at his laptop and thinking.
International Stock News

Why Alphabet stock was sliding today

Let's take a look.

Read more »

A man looking at his laptop and thinking.
International Stock News

Nvidia's stock was down despite its amazing earnings. Here's what history says is coming next

Although it might seem to defy logic, it's not an uncommon phenomenon.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Nvidia share price slips despite 94% revenue growth

Q3 earnings beat expectations, but what about guidance?

Read more »

high, climbing, record high
International Stock News

Could the S&P 500 Index hit 6,500 by the end of 2025?

Could the index climb higher?

Read more »

a small child holds his chin with his head on the side in a serious thinking pose against a background of graphic question marks and a yellow lightbulb.
International Stock News

Is it too late to buy Nvidia shares?

Is Nvidia stock a buy ahead of its third-quarter earnings report tomorrow?

Read more »

a group of people stand examining a large glowing cystral ball held in the hands of one of the group members while the others regard it with various expressions of wonder, curiousity and scepticism.
International Stock News

Here's what to expect from Nvidia on November 20

Can Nvidia score another win?

Read more »

Two people lazing in deck chairs on a beautiful sandy beach through their hands up in the air.
International Stock News

2 no-brainer Warren Buffett stocks to buy right now

While replicating Buffett's success isn't possible, there are a handful of his investments that are no-brainer buys.

Read more »

A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
International Stock News

3 reasons to buy Nvidia stock before November 20

This week marks a big moment for tech investors as perhaps the most anticipated earnings of the year will be…

Read more »