Investment Institute

The future, faster: How AI is accelerating the metaverse and its investment potential

  • 09 October 2023 (5 min read)

Key points:

  • Generative AI is making it easier to create content in the metaverse, bringing new opportunities for companies spanning a multitude of sectors
  • This is underpinning demand for services from the companies providing the metaverse’s building blocks
  • We see potential investment opportunities in sectors exposed both directly and indirectly to the metaverse as we are at the start of a long-term trend

The metaverse is an environment where the physical and digital worlds come together. We may still be some way away from a fully immersive experience, but the future is coming faster than you might think. The huge strides we have seen in the development of generative artificial intelligence (AI) in the past year alone are accelerating progress towards this new paradigm of how we spend our work and leisure time.

AI is driving the journey towards a more immersive, inclusive metaverse, opening new possibilities for companies, consumers, and investors.

The metaverse allows individuals to interact with each other in shared online spaces. Within the metaverse, we can shop, ocializes, work, or even watch a concert in real time, in a way that has never been possible.

The metaverse is predicted to generate up to $5trn in value by 2030 – roughly equivalent to the size of Japan’s economy – the world’s third largest.1 AI is already a key cornerstone of the development of the metaverse, but the latest iteration of generative AI goes a significant step further, making it quicker and easier to transform ideas into highly realistic content and experiences.

This is a crucial shift for companies and for investors. For example, in the gaming sector, companies can design increasingly sophisticated and lifelike games and worlds, broadening their appeal to consumers and bringing in new revenue. And this opportunity isn’t just for the professionals – developer Roblox, which lets gamers build, program, and play games created by other users, wants every player to be able to be a creator, with the means to bring their imaginations to life. Last year, existing creators on its platform earned $624m, which it expects to increase to $800m this year, adding to the overall expanding metaverse economy.2


Benefits for business

But the metaverse extends far beyond gaming – into socializing and working, as well as the companies providing the technology needed to build the metaverse, from semiconductors and network equipment to cybersecurity and payments.

Businesses creating digital twins – a digital copy of a physical object or place, for example to design or modify a product in an easier, safer, and more responsive environment – can also use generative AI to work much faster and more efficiently.

A study by McKinsey & Company found some users were able to cut product development time by as much as 50% while others reported that products which began life as digital twins had 25% fewer quality issues when they entered physical production.3

The potential uses of digital twins are myriad, from testing car parts in crash scenarios, to Siemens’ involvement in the North Devon UNESCO Biosphere. This AI simulation of a river area in southeast England, combined with outdoor sensors collecting data such as soil health and water levels, allows experts to address issues such as flood risk and land degradation.4

Healthcare is another sector harnessing the possibilities of the metaverse. For example, patients could put on a virtual reality headset to speak to a doctor for a more realistic, meaningful interaction than a telephone call. Generative AI can also help update patient notes faster, saving doctors time, while digital twins can help diagnose illnesses or allow surgeons to practice operating.

Elsewhere, companies that use AI in the metaverse may be able to scale up and respond to changing customer demand more quickly and accurately – analyzing consumer behavior to create both more personalized experiences and innovative offerings. For example, Snap – parent company of the Snapchat social media platform – recently launched a service offering augmented reality and AI tools to retailers which lets customers try on clothing and accessories virtually, potentially boosting their engagement with the brand and translating to sales.5


Scaling up the building blocks

For the metaverse to scale up, a large amount of new content is needed – which in the past has been a barrier to more rapid growth, due to time and labor constraints. Generative AI allows anyone with a creative idea to use the technology to bring it to life, while professionals can ask generative AI to build the more standard parts of their design while they focus on adding value in other aspects.

Behind all this are the tech companies providing the building blocks and the infrastructure of these platforms, such as Nvidia, Marvell, Synopsys, TSMC, and ASML, among others. The growing complexity of the metaverse and its virtual worlds requires increasingly sophisticated chips and tools for chip design, creating demand and potential new investment opportunities in semiconductor manufacturers.

The growing industry also needs more infrastructure than is currently available, leading to significant capital expenditure expectations on facilities like data centers to house computer servers. Data centre leasing in the US has risen to record levels with operators able to charge a premium for capacity.6

But as the metaverse expands, more companies and people will access it, helping bring down costs of everything from consumer wearables to infrastructure services, which in turn will help scale it further. We can see this historically in the cost of graphics processing units (GPUs) where the cost per unit came down significantly as the scale of gaming increased. A larger user base also means more content.

A more integrated metaverse

Companies are increasingly crossing the boundaries between gaming, socializing, and working – as the metaverse becomes more integrated and holistic rather than a collection of silos. For example, Apple recently unveiled its Vision Pro – it describes the mixed-reality headset as “a revolutionary spatial computer,” with the first devices expected to go on sale in early 2024.7  The Vision Pro will use AI and augmented reality to blend digital content with the physical world. This could mean transforming any space into a cinematic experience, communicating with others via a life-sized avatar, or working on a computer within an unrestricted workspace, creating a new way to visualizes projects.

Similarly, Unity, a software provider for real-time 3D content, is well-known in the gaming space. But it is also increasing its foothold in other industries such as manufacturing, energy, and retail allowing companies to use its services to create digital twins, factory simulations, virtual shops, and more.8

As the metaverse grows, we expect demand for the products and services of companies exposed both directly and indirectly to the metaverse to have the potential to soar. We believe that many tech companies focusing on the metaverse, albeit often alongside their other business areas, tend to be at the forefront of innovation, changing trends, and consumer demand. This is likely to drive their earnings potential and provide the scope for potential long-term investment returns.

We continue to believe that we are at the early stages of tapping the potential of the metaverse, but as it becomes more immersive and integrated – in part, thanks to AI – it will create opportunities in almost every aspect of the way we live and work. 

References to companies are for illustrative purposes only and should not be viewed as investment recommendations.

Risk Warning: Investment involves risk including the loss of capital.

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