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Step into the metaverse

Yash Patodia, Global Industry Analyst
2022-08-31
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The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

Investing in the metaverse

The growing excitement for the metaverse is powered by its incredible potential applications and the tremendous value they could create. But importantly, the technology enabling this seemingly magical innovation is still in development. What some overlook is that the biggest bottleneck today is not software or imagination — but rather the necessary upgrades to the metaverse’s foundational hardware infrastructure. This could create massive investment opportunities.

Asia is the tech supply chain of the world and builds many of the essential components that need to improve to realise this innovation. For instance, Asian companies provide nearly 70% of global semiconductor manufacturing1 and could benefit from this revolution for years to come. Though there are many ways to invest in the metaverse technology stack, we think hardware infrastructure (Figure 1) offers today’s most compelling investment potential.

 FIGURE 1

apbchart-outline

Hardware infrastructure

Significant technological leaps need to be made to make the metaverse dream a reality. Here, we outline areas of required hardware infrastructure progress and highlight the potential Asia tech markets that could benefit:

  • Improved processing power: To reach the processing power capable of rendering immersive metaverse experiences requires an order-of-magnitude increase in processing speed. These speeds are at least one or two chip generations in the future (~4 – 8 years) and require substantial investment over the long-term, including in:
    • Advanced chips from Taiwan and China
    • More semiconductor equipment (e.g., lithography, testing) from Japan and South Korea
    • Increased foundry capacity from Taiwan and South Korea
    • Better manufacturing materials and packaging processes from China, Japan, Taiwan and Malaysia
       
  • Stronger networks: Network bandwidth will need upgrades to support higher-quality streaming in areas like gaming with virtual and augmented reality. Rendering an individually unique 3D world around you takes up much more data — potentially hundreds of times more per person.

  • Lower latency: Today’s data latency is well over what is tolerable for the metaverse. It will require improved switches, fibre optics, networking cards, servers and edge processing. Leaders here include Taiwanese companies building network switches and communications chipsets and Japanese firms specialising in high-precision integrated circuit substrates for advanced semiconductor packaging.

Bottom line

The metaverse will likely create unimaginable experiences, innovative technologies and new digital economies with jobs (and even industries) that don’t yet exist. But what excites us most today is the massive hardware investment necessary to reach the progress the metaverse creates. Countless Asia tech companies will help power this technology and could be long-term winners.


1Source: Boston Consulting Group, April 2021.

Authored by
patodia-yash
Yash Patodia
Global Industry Analyst
Singapore

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All figures are for the Wellington Management Group of companies as at 31 December 2021.
Past performance is no guarantee of future performance and can be misleading.
Funds returns are shown net of fees.
Source: Wellington Management


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