Metaverse is the new buzzword in the tech space. Chip giant Nvidia (NVDA) defines the metaverse as “a shared virtual 3D world, or worlds, that are interactive, immersive, and collaborative.” The Metaverse will be powered by technologies like virtual reality, artificial intelligence (AI), and augmented reality (AR).
The term gained even more attention last year when social media giant Facebook changed its name to Meta Platforms (FB) to reflect the company’s vision to move “beyond 2D screens toward immersive experiences like augmented and virtual reality to help build the next evolution in social technology.”
Considering this backdrop, we used the TipRanks Stock Comparison tool to place AMD, Nvidia, and Unity Software against each other, and select the metaverse stock that could offer attractive returns.
Advanced Micro Devices (NASDAQ: AMD)
The building of the metaverse will require advanced processors, and semiconductor chip makers like AMD are well-positioned to address this demand.
AMD recently announced its collaboration with Meta Platforms as an ecosystem partner to build a Metaverse-ready radio access unit (or RAN). The company’s radio chip – Xilinx Zynq UltraScale RFSoC, will be used in the Meta’s Evenstar radio units. AMD completed the $49 billion acquisition of Xilinx in February 2022. This acquisition enhanced AMD’s portfolio by adding Xilinx’s FPGA (Field Programmable Gate Array)-based technologies.
Further, AMD recently acquired Pensando Systems for $1.9 billion. This deal expands AMD’s data center solutions capabilities with the addition of Pensando’s high-performance data processing unit and software stack.
Last month, AMD raised its full-year 2022 revenue guidance to reflect the addition of Xilinx, strong server processor revenue, and higher revenue from semi-custom chips that are used in game consoles.
Recently, Piper Sandler analyst Harsh Kumar upgraded AMD to a Buy from Hold and increased the price target to $140 from $90 as his fears of a slowing PC market and Xilinx acquisition being a drag on earnings have not played out as expected.
Harsh sees the pullback in the stock as a good buying opportunity based on mid-to-long-term catalysts like strong server trends, robust semi-custom trends, commercial PC growth offsetting consumer PC exposure, and Xilinx acquisition.
Overall, the Street has a Moderate Buy consensus rating on AMD based on 13 Buys and nine Holds. At $134.47, the average AMD price target implies 27.28% upside potential over the next 12 months. Shares are down nearly 27% year-to-date.
Nvidia (NASDAQ: NVDA)
Nvidia, which has a dominant position in the GPU (Graphics Processing Unit) market, is helping customers build the metaverse through its Omniverse platform. Nvidia’s Omniverse is a simulation and collaboration platform that connects 3D worlds into a shared virtual universe.
Omniverse platform is now being used in many industries for several applications, including design collaboration and in creating digital twins (like simulations of real-world buildings and factories). For instance, German automaker BMW Group is using Nvidia’s Omniverse to create a digital twin of an entire factory.
Overall, demand for Nvidia’s graphics chips in gaming, data centers, and metaverse is expected to drive its long-term growth. The company is also geared up to launch its first data center CPU in 2023.
Following Los Alamos National Laboratory’s recent announcement about a next-generation supercomputer called Venado at the ISC22 conference, Wells Fargo analyst Aaron Rakers stated that it was “another massive next-gen supercomputer deployment” to use Nvidia’s upcoming Arm-based Grace Superchip CPUs (Central Processing Units) along with the company’s Grace Hopper Superchips.
Rakers reaffirmed a Buy rating on Nvidia stock with a price target of $250.
Overall, Nvidia scores a Strong Buy consensus rating based on 27 Buys and five Holds. The average Nvidia price target of $271.41 implies 44.47% upside potential from current levels. Shares are down 36% so far this year.
Unity Software (NYSE: U)
Unity Software’s platform offers software solutions to create, run and monetize interactive real-time 2D and 3D content for mobile phones, tablets, PCs, game consoles, and augmented and virtual reality devices. The company claims that over half of the top 1,000 mobile games on the Apple App Store and Google Play have been created using its platform.
Several companies are using Unity’s software to create digital twins, which refers to virtual copies of real-life asset, physical site, or even a person.
Unity’s Q1 results were impacted by an internal error that resulted in reduced accuracy of a tool. Also, the company lost the value of a portion of its training data as it ingested bad data from a large customer. These headwinds impacted Unity’s monetization business and offset the strong momentum in the company’s Create Solutions division as well as full-year outlook.
William Blair analyst Dylan Becker noted that Unity’s management is taking the necessary steps to address the internal error in an expedited manner, and he considers these headwinds as temporary.
Becker continues to believe that Unity is poised to capitalize on several industry tailwinds leading to a large and growing market opportunity, which should support sustainable revenue growth of over 30% for the next several years.
Overall, the Street has a Strong Buy consensus rating on Unity stock based on 11 Buys and three Holds. The average Unity Software price target of $76 implies upside potential of 77.49% from current levels. Shares have declined 70% year-to-date.
Conclusion
AMD, Nvidia, and Unity Software are expected to enjoy strong demand as they have the tools that will help enterprises build out the metaverse. However, given the significant plunge in Unity stock, several analysts see it as a lucrative opportunity to build a position in this pick-and-shovel play for the metaverse and ensure higher returns.
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