Metaverse Academy: Enablers
- Enablers refer to the companies producing cutting-edge hardware, infrastructure, and services necessary to grow the Metaverse
- These vital building blocks underpin all other themes – gaming, socialising, and working
- Enablers facilitate the link between the virtual world of the Metaverse and its real-life participants and places
We’ve seen that themes of gaming, socialising and working are driving the interconnected evolution of the Metaverse across industries. These capabilities which bring together people, places and things continue to gain sophistication and acceptance. But behind these attention-grabbing, relatable, and increasingly familiar concepts is a powerful and tangible network of enabling businesses. These provide crucial chips, hardware, next-gen networks and communication capabilities, flow of virtual payments, and cybersecurity. While we can take advantage of the social, leisure and workplace functionalities of the Metaverse, these key building blocks are working hard behind the scenes to ensure that our immersive experience is fast, reliable, accessible - and safe.
A chip off the old block
As with many advanced technologies, the capabilities of the Metaverse owe a great deal to the availability and continued development of advanced chips and the capabilities that they power. Companies producing and developing new products utilising semiconductors are, therefore, some of the most fundamental supporting characters for the long-term growth potential of the Metaverse. NVIDIA is known for producing high quality, graphic processing units (GPUs), with a strong portfolio of assets which are used in computationally intensive fields such as gaming, data science, artificial intelligence and augmented and virtual reality.1 It also has a strong commitment to and belief in the potential of the Metaverse, and its additional networking business segment has unveiled a new software suite named Omniverse to this end. While NVIDIA is primarily focused on its chips business, the platform provides real-time graphics collaboration capabilities which power the ‘digital twin’ functionality which we have already seen as important to the growth of industrial uses of the Metaverse within the ‘working’ theme, as well as paving the way forward for greater machine learning and automation capabilities.2 Helping to keep the supply of semiconductors in pace with demand are manufacturers of semiconductor capital equipment such as ASML, a market leader developing and producing the photolithography machines used to produce chips. Its most advanced, leading-edge microchips are developed with extreme ultraviolet (EUV) lithography, which increases the capabilities and sophistication of the chips, helping to provide the technology needed to build the complex virtual worlds needed for a truly immersive Metaverse experience.3 Another source of powerful chips is AMD, which designs both GPUs and central processing units (CPUs). Its advanced capabilities have been recognised by Meta Platforms (formerly Facebook), and the two companies have entered into a partnership with AMD to supply its powerful, third generation ‘Epyc’ chips to power Meta’s data centre expansion.4 As the fourth largest data centre operation in the US, Meta buys billions of dollars of chips per year.
Companies which design advanced chips also rely on semiconductor manufacturers to provide the capacity and capabilities to produce those chips, and Taiwan Semiconductor Manufacturing is a market leader which manufactures semiconductors notably for NVIDIA, AMD, and QUALCOMM (below) amongst others. The company has issued capital expenditure guidance of around $40bn for 2022, a 40% year-on-year increase and which is mostly geared towards cutting-edge investments used for more sophisticated Metaverse platforms.
The telecommunications infrastructure, alongside the ease and speed of transmitting large quantities of data, is another cornerstone of the continued development and uptake of the Metaverse. To this end, QUALCOMM is another key player in the enablers market. As well as being a major semiconductor company, it’s also one of the forces behind the mobile revolution and its technologies are found in every smartphone from the advent of 3G onwards.5 The company believes that the Metaverse has as much potential to revolutionise the way we communicate as the growth of mobile phone technology has been seen to, and continues to invest in a significant pipeline of augmented reality (AR) developments. These include Snapdragon XR, a sophisticated AR system which makes use of newer 5G connectivity to provide impressive realism in virtual worlds, and can harness this power to provide much faster rendering for more believable real-time experiences. Importantly, this new platform has a processor 40% smaller than previous designs, making the prospect of less bulky wearables more appealing.6 QUALCOMM has also partnered with Microsoft to collaborate on designing custom AR chips and integrate software platforms to further boost the seamless immersivity of the Metaverse.7 The roll out of new capabilities provided by 5G is also being utilised by Lumentum Holdings, a company which provides diode lasers which power advanced 3D sensing capabilities for hardware including the newest virtual reality (VR) headsets. These have successfully been used in the PC and gaming markets, and are now able to be adopted by mobile devices to further enable the immersive, roaming Metaverse experience.8
Coining it in
The opportunities available within the Metaverse market are advanced, and the mechanisms for directing the flow of payments from the revenue generated by it is no different. Online payment providers such as PayPal are well known for their more traditional accessible banking and e-commerce applications. Its online wallet solution, Venmo, continues to be a development priority for the company. PayPal also introduced cryptocurrency services earlier this year, and currently offers transactions in four of the most established currencies – Bitcoin, Ethereum, Litecoin and Bitcoin Cash.9 It’s important to note that while cryptocurrencies themselves are volatile and unregulated and do not form part of the enablers sub-theme for long-term growth, the mechanisms they operate in are important to the flow and ease of payment services in a virtual world. The currencies use Blockchain technology, which at its core is a sophisticated digital ledger recording transactions securely across a global network. Its potential has been noted by the CEO of Coinbase, a leading cryptocurrency trading platform and virtual ‘wallet’ provider. The decentralisation and movement away from historical payment structures and concentration is fundamental to the global opportunities within the Metaverse to buy, sell, or earn income with ease without breaking the immersive experience, and high-profile investors behind its growth are pushing for the development of more capabilities and greater transparency.10 The advocacy of major market players such as Coinbase towards greater transparency suggests a promising and a positive future is possible for cryptocurrencies to become more open, accessible and regulated, all of which is likely to increase their uptake and acceptance in newer markets. Industry participants in decentralised finance, or ‘DeFi’ have already begun to coordinate discussions on how to prepare for the strong likelihood of regulatory intervention and stronger controls and, in doing so, secure greater certainty and a wider user base for the future opportunities this could provide.11 Indeed, the online payment platform and cryptocurrency specialist formerly known as ‘Square’ now trades as Block, in a further nod (in solidarity with Meta Platforms) to the evolution of the importance of the Metaverse and the expected future trajectory of technology, communications and currency flows.
Fear of the dark
The Metaverse is an exciting technological frontier, and as with all new technological abilities – particularly those which entwine with our real-life identities, finances, health and safety – it’s important to build and maintain a security framework to ensure that it continues to develop in a way which is positive. Immersive, popular platforms, particularly those used by minor or vulnerable people, require stringent data collection, validation and monitoring to ensure that the future of the Metaverse and the experiences offered through it remains bright and promising. That’s why companies such as Palo Alto Networks, a global cybersecurity leader, form one of the enabling pillars of greatest importance. Using the Metaverse will mean that more personal information will be recorded than ever before, and the firm offers next-generation firewall services to prevent and detect increasingly sophisticated cyberattacks aimed at stealing or fraudulently exploiting sensitive personal data. The leadership team believes in the responsibility of organisations to plan and implement strong and robust rules for security, designing them alongside and in tandem with the evolution of the Metaverse - proactively driven by industry rather than reacting to future regulations.12 Crowdstrike Holdings is a cybersecurity company which recognises the immediate and growing need for increased security for data held and accessed within the cloud, and designs solutions specifically for it. It provides intelligence and cyberattack response services and helps people, companies and organisations accessing the Metaverse to keep their data and virtual property secure. Crowdstrike enhanced its assets by acquiring Secure Circle, a provider of strategic ‘zero trust’ cybersecurity which eliminates all implicit trust from a transaction and validates every stage digitally.
The four enabling pillars vary between those companies dedicated to building and supporting the Metaverse, and those which offer enabling services as part of their wider technological suites and services. All, however, are expected to contribute materially to the development of the market; doing this in a robust, reliable, secure and sophisticated way is essential to make the Metaverse a long-term growth trend.
Companies shown are for illustrative purposes only as of 06/12/2022. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities.
No assurance can be given that our equity strategies will be successful. Investors can lose some or all of their capital invested. Our strategies are subject to risks including, but not limited to: equity; emerging markets; global investments; investments in small and micro capitalisation universe; investments in specific sectors or asset classes specific risks, liquidity risk, credit risk, counterparty risk, legal risk, valuation risk, operational risk and risks related to the underlying assets.