Playing the metaverse: Morgan Stanley's stock picks for the $8 trillion opportunity

Published Tue, Nov 16 202111:04 AM EST

With Facebook's new name and focus come new investment opportunities. Facebook last month changed its company name to Meta . The new name reflects the company's growing ambitions beyond social media. Meta has adopted the new moniker, based on the sci-fi term metaverse, to describe its vision for working and playing in a virtual world. This opens change opens the door to a massive opportunity for investors, according to Morgan Stanley. Analyst Brian Nowak said in a note Tuesday that the metaverse is an $8 trillion addressable market, as it is "most likely to be a next generation social media, streaming and gaming platform." "And like current digital platforms, we expect the metaverse to initially and primarily operate as an advertising and e-commerce platform for offline products/purchases," Nowak added. Morgan Stanley said adoption of the metaverse could be challenging, as current e-commerce options have never been so robust. The firm said this means that any metaverse is likely going to need partners to drive adoption. To capture the $8 trillion opportunity, Morgan Stanley said the most obvious player is Meta, formerly known as Facebook. "We remain positive FB primarily because of the still under-appreciated core business growth durability and free cash flow in to '22," Nowak said. "This is even through an estimated $13.6bn of investment in the metaverse in '22to build the next generation version social networking." There are also several stocks that could take advantage of the metaverse opportunity. Take a look at Morgan Stanley's list here: Gaming company Roblox has an opportunity to leverage its 47 million daily active users with the metaverse's advertising, sponsorship and e-commerce opportunities, Morgan Stanley said. "Like FB, what we like most about RBLX is that the core growth and monetization algorithms (aging up, global growth, in-app spend) also remain strong," said Nowak. The analyst added that Google-parent Alphabet "has leading traffic, compute power, engineering talent and a growing focus on augmented reality." He noted "if we believe in next generational platforms, they should not be dismissed." Snap is the leader is augmented reality, the firm noted. "So the extent to which augmented reality technologies are important in the metaverse could highlight value here," Nowak said. Unity Software , the most widely used engine in the video game industry, is another stock that should benefit from the metaverse. Unity is in a strong position to help with the creation of 3D interactive content. "In a scenario where the metaverse attracts large numbers of content creators beyond gaming (e.g., to build virtual stores, 3D models of homes etc.), we believe U could serve as a true 'picks and shovels' business for an audience beyond (and including) its current core of game developers and artists," said Nowak. All of the listed stocks have an overweight rating — except for Unity Software, which has an equal weight rating from Morgan Stanley. — with reporting from CNBC's Michael Bloom.

People take photos of the new "Meta" sign at the One Hacker Way in Menlo Park, as Facebook changes its company name to Meta in California, on October 28, 2021.

Tayfun Coskun | Anadolu Agency | Getty Images

With Facebook's new name and focus come new investment opportunities.