Tech giants are investing heftily to develop metaverse platforms, given its wide-ranging applications. The metaverse concept encompasses virtual reality (VR) and augmented reality (AG) technologies. Financial services company Jefferies Group has predicted metaverse will be the biggest disruption in the coming years, akin to the internet in its early days.
Companies and investors are warming to the idea of the metaverse, and investment bank Morgan Stanley (MS) even predicts it will be ‘the next big investment theme.’ The global metaverse market is expected to reach $872.35 billion in 2028 and register a 44.1% CAGR.
Therefore, the fundamentally sound stocks of Microsoft Corporation (MSFT) and Meta Platforms, Inc. (FB) might be ideal bets. FB has made substantial investments in VR, while MSFT already uses extended reality (XR) applications in its Microsoft Mesh platform.
Microsoft Corporation (MSFT)
MSFT is a software behemoth that provides software services, solutions, and devices worldwide. The company sells its products through distributors, OEMs, resellers, or digital marketplaces. It has a more than $2 trillion market capitalization.
On December 2, MSFT and CVS Health Corporation (CVS) announced a strategic alliance to develop innovative solutions for consumers’ health. Given the accelerated transformation initiatives in the healthcare sector, this alliance could prove profitable for MSFT.
On December 1, MSFT released Teams Essentials, a stand-alone affordable Microsoft Teams offering designed for small businesses. The solution should be in demand given the popularity of remote working and hybrid work structures.
For its fiscal first quarter, ended September 30, MSFT’s total revenue increased 22% year-over-year to $45.32 billion. Its operating income increased 27.5% from the prior-year quarter to $20.24 billion. Its net income and EPS stood at $20.51 billion and $2.71, respectively, registering a47.6% and 48.9% increase year-over-year.
Analysts expect MSFT’s EPS to improve 14.3% year-over-year to $9.20 in the current year (fiscal 2022), while the Street’s $196.73 billion revenue estimate for the current year indicates a 17% rise from the prior year. In addition, the stock has beaten consensus EPS estimates in each of the trailing four quarters.
MSFT’s stock has gained 48.2% in price over the past year to close yesterday’s trading session at $324.90. It has gained 46.1% year-to-date.
MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MSFT has a Sentiment grade of A and a Stability and Quality grade of B. In the 168-stock Software – Application industry, it is ranked #14. Click here to see the additional POWR Ratings for MSFT (Growth, Value, and Momentum).
Click here to check out our Software Industry Report for 2021
Meta Platforms, Inc. (FB)
FB, which is headquartered in Menlo Park, Calif., is the biggest social media company in the world. As the owner of WhatsApp, Instagram, and various other companies, FB has operations in numerous fields. On October 28, FB CEO Mark Zuckerberg introduced Meta, bringing Facebook’s app and technologies under a new brand, with the expectation of helping people connect and grow their businesses.
On December 16, FB announced that its researchers had developed a first-of-its-kind method using AI for automatically animating children’s hand-drawn figures of human-like characters. The company expects to release the data set and share more research details of this innovation in the coming year.
On December 8, FB reported that it had deployed a new AI technology called Few-Shot Learner (FSL) that can rapidly act against harmful content. The new technology is expected to help the company augment its existing methods of addressing harmful content.
For its fiscal third quarter, ended September 30, FB’s total revenue increased 35.1% year-over-year to $29.01 billion. Its income from operations rose 29.6% from the prior-year quarter to $10.42 billion. Its net income improved 17.2% from the same period last year to $9.19 billion, while EPS increased 18.8% year-over-year to $3.22.
A $13.94 consensus EPS estimate for the current year (fiscal 2021) indicates a 38.2% year-over-year increase. And the $117.71 billion consensus revenue estimate for the current year reflects a 36.9% improvement from the prior year. Furthermore, FB has an impressive surprise earnings history; it has topped consensus EPS estimates for each of the trailing four quarters.
The stock has gained 21.5% in price over the past year and 22.6% year-to-date to close yesterday’s trading session at $334.90.
It is no surprise that FB has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a Quality grade of A and a Sentiment grade of B. In the 77-stock Internet industry, it is ranked #9.
To see the additional POWR Ratings for Growth, Value, Momentum, and Stability for FB, click here.
MSFT shares were trading at $321.75 per share on Friday afternoon, down $3.15 (-0.97%). Year-to-date, MSFT has gained 45.87%, versus a 24.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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