Investors have increasingly focused on metaverse stocks, given the increased attention on the virtual reality (VR) sector. Much of that focus has gone to Meta Platforms ( FB 2.00% ), the parent company of Facebook, which changed its name to help capitalize on this market. Other investors may devote attention to Nvidia ( NVDA 6.68% ), as its chips will likely power many metaverse applications.
However, this emphasis could lead to investors paying less attention to other virtual reality stocks. Given their role in the metaverse and their potential for growth, investors should also consider companies such as Advanced Micro Devices ( AMD 4.26% ) and Zoom Video Communications ( ZM 2.24% ). Let’s take a closer look at these two under-the-radar metaverse stocks.
Image source: Getty Images.
1. AMD
AMD has challenged Nvidia in the GPU market, taking market share from Nvidia in many areas. As a company that has focused on CPU and GPU development, its core competencies point to potential as a leader in data centers, strengths that can give AMD a key role in the metaverse.
Its most obvious coup was landing a deal with the company now known as Meta Platforms. The social media giant announced in November that it would run its data centers on AMD’s EPYC processors.
AMD has also maintained its rapid growth pace despite rising to a $175 billion market cap. In the first nine months of fiscal 2021, AMD reported $11.6 billion in revenue, 78% more than in the first three quarters of 2020. Because it raised gross margins and controlled the increase in operating costs, AMD earned a net income of $2.2 billion in the first three quarters of the year, 210% more than the $709 million earned during the same time in 2020.
AMD’s stock price has also risen by almost 50% over the last 12 months. While Nvidia stock outperformed AMD during that time, AMD appears better positioned to move higher. The company forecasts 65% revenue growth for the fiscal year, slightly higher than Nvidia. One can also buy AMD’s growth stream for less than 45 times earnings, well below the price-to-earnings (P/E) ratio of Nvidia, which stands at almost 90.
Hence, as Nvidia seeks to find its place in the metaverse, AMD continues to stake its own claims. With its lower multiple and comparable revenue growth, AMD could earn higher profits for metaverse investors.
2. Zoom Video Communications
Zoom saw its surge after the COVID-19-related shutdowns forced everyone inside and drove a need for video conference software. However, in a world where Microsoft and Cisco Systems also compete in the video conferencing space, Zoom faces more pressure to stand out.
Despite the return of in-person meetings, video conferencing is not going away, and the company has taken further steps to bring Zoom into the metaverse. It has teamed up with Meta Platforms to tie its Oculus 2 Headset to Zoom to conduct virtual meetings. As a “mixed reality” experience, it can create more of a feeling of being in the same room with colleagues, even with people who are physically on the other side of the world.
Offering this functionality comes at an opportune time for investors. As offline activities have increased, much of the interest in Zoom has disappeared. Nonetheless, Zoom continues to exhibit significant growth.
For the first nine months of fiscal 2021, Zoom generated almost $3 billion in revenue, a 71% increase compared with the first three quarters of 2020. The company reported $885 million in net income during the first nine months of 2021. This surged 115% from the same period in 2020, as $155 million in strategic gains in assets offset $78 million in income taxes.
Revenue growth may slow modestly as the company forecasts $4.08 billion in revenue for 2021, 56% higher than the $2.65 billion reported in 2020. That decline may offer little comfort to investors who have seen the stock drop steadily during the year, falling in price by more than 55% over the last year.
Still, the falling stock price and rising profits have taken the P/E ratio below 50, only modestly higher than Microsoft’s P/E above 35. With rapid growth expected to continue and its move into the metaverse, the declines in Zoom stock could help make it one of the best stock buys of 2022.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.