The metaverse promises to be the future of the digital economy and metaverse stocks are shares in companies likely to benefit from it. Investors are all desperate to get in on the ground floor before these companies explode in value. But how am I supposed to know the shape it will take? I can’t and that’s why I’m investing in the infrastructure underpinning the metaverse.
Cryptocurrency
When I first heard of Bitcoin in 2013, I scoffed at the very notion of cryptocurrency. I thought it would simply be a passing fad. Ten years down the line and I couldn’t have been more wrong. There are still a lot of sceptics out there, but as more and more institutional investors add cryptocurrencies to their portfolios I can’t shake the feeling that it’s here to stay. Because of this, I’m adding Argo Blockchain (LSE: ARB) to my portfolio.
ARB is a crypto-mining service provider which, in simple language, means that it owns and operates the computer servers needed to keep records of blockchain transitions. For its work, Argo is paid in newly minted Bitcoin, which sits today as the most valued cryptocurrency on the market.
The company share price was in decline through 2021 after shooting up more than 700% in December 2020. It currently trades at 82.25p and is likely to continue falling in the short term as Bitcoin loses value and cryptocurrencies enter a bear market. However, these things always come in cycles and Argo Blockchain will continue to accrue Bitcoin until the next ‘halving event’ in 2024. Once this happens, the number of new Bitcoin minted is halved. This is part of a process written into the cryptocurrency’s code by its creator to control inflation. The supply shock usually triggers a bull market.
The biggest risk here is knowing if Argo blockchain will survive until 2024. Right now, the cost of revenue is uncomfortably high and the company has only been profitable since 2020. If it sells Bitcoin now it should have enough cash to survive through the next bear market, but it’s still something I need to keep in mind.
Metaverse computing power
The metaverse will be nothing without the computing power to keep it running. To this end I’ll be adding Nvidia (NSADAQ: NVDA) to my portfolio as well. Nvidia designs and manufactures several key components that make computing possible, from GPUs to semiconductors and the software that runs on them. Nvidia currently trades for $272, up 100% from this time last year and up over 900% since 2017. I worry that part of this is down to investor overexcitement. The share’s price-to-earnings (P/E) ratio is unnervingly high at 84.11. Normally I wouldn’t feel comfortable with anything over 20, but this statement from Wells Fargo analyst Aaron Rakers has eased my concerns somewhat. “We estimate that the metaverse could equate to a $10bn incremental market opportunity for NVIDIA over the next five years.”
Ordinarily, I’m suspicious of over-optimistic predictions, but there is genuinely no knowing how big the metaverse may end up being. It could fall apart or it could be a whole new world of opportunity. When it comes to tech, the sky’s the limit.
If it turns out to be the latter, I definitely want to be a part of it.
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.
