The Reality of AI and the Metaverse

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Investors have not been feeling the virtual world. Will that change?

It wasn’t long ago when the metaverse—and not artificial intelligence—was considered one of the biggest investing themes on Wall Street. But the days when Meta Platforms ( META) accelerated the conversation about the metaverse after rebranding from Facebook in late 2021 seem as distant as the global pandemic that was also unfolding at that time.

While some notable tech names are still betting big on the metaverse, and some promising metaverse-adjacent products have debuted, the early results of augmented virtual reality haven’t been commensurate with the flood of investor capital thus far. Meanwhile, artificial intelligence (AI) has consumed much of the oxygen in the emerging tech growth lane that the metaverse had been hoping to. So where does the metaverse go from here?

What is the metaverse?

Some tech prognosticators think the metaverse is the next evolution of the internet—a 3D model of the internet. It has also been characterized as Internet 3.0 (with Internet 1.0 being the early desktop iteration in the 1990s and Internet 2.0 being the mobile/social networking revolution in the 2000s).

Components of the metaverse already exist—think virtual reality, social networking, and online gaming, to name a few. The metaverse can generally be thought of as combining all these experiences and more, in a deeper, immersive virtual reality, with a seemingly infinite number of users synchronously and persistently interacting.

Metaverse investing

In the face of meager broad-based metaverse adoption, the launch of Apple’s high-profile mixed-reality headset boosted the hopes of some stalwart metaverse optimists. Vision Pro debuted in February of this year to mostly positive reviews—despite a hefty price point that’s been prohibitive for many potential consumers compared to Meta’s Quest headset.

Neither headset has resuscitated the early metaverse euphoria thus far. To be sure, Wall Street had previously been exceedingly optimistic. Citi analysts, for example, estimated back in 2022 that the metaverse economy could reach $8 trillion to $13 trillion by 2030.1

Those rose-colored glasses forecasts have since been reigned in, due in large part to Meta’s Reality Labs having lost tens of billions already (Meta has invested over $15 billion a year over the last several years). Nevertheless, Meta CEO Mark Zuckerberg has reiterated numerous times that the company plans to forge ahead into the metaverse.

Can the metaverse still generate investing opportunities?

Metaverse proponents still see opportunities in gaming technology and software, smartphone and wearable tech, digital infrastructure, web development and content services, design and engineering software, and computing hardware and components.

But the path forward may be less clear than it appeared back in 2021. Investors have punished companies that continue to invest heavily in metaverse-related projects.

Meanwhile, artificial intelligence investments have soared. The semiconductor industry—which supplies chips for artificial intelligence projects—surged 73% in 2023 and has added another 13% year to date, as of early May. Some think the momentum behind AI might help jump start the metaverse. Zuckerberg has been among a few prominent voices noting the potential synergies of artificial intelligence within the metaverse environment. Whether the metaverse can ride AI’s coattails remains to be seen.

In conclusion

Based on our analysis, the environment today looks likely to support further stock-market gains. Investors looking to make tactical adjustments to their long-term portfolios might consider nudging up their exposure to small- and/or mid-cap companies.


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