Forget Nvidia: This $ 57 Billion Metaverse Opportunity Is In An Unexpected Sector


The prospect of future industries revolving around the metaverse – the virtual worlds – has received a lot of attention.

After all, the social media giant


Facebook

(ticker: FB) changed its name to Meta last month to reflect its ambitions to build the metaverse, where augmented and virtual reality will allow users to interact in online worlds that include games and purchases.


Nvidia

(NVDA), the powerhouse of computer chips, unveiled new computer software and tools last week as it solidified its own competitive push in virtual worlds, which it calls Omniverse. Its innovations include a platform for generating artificially intelligent avatars and a computer engine that will help train the deep neural networks that make up AI.

Optimism about Nvidia and the Metaverse has contributed to the stock surge in recent weeks, and this was expected to continue on Thursday after the company posted strong third-quarter earnings. CEO Jensen Huang didn’t miss an opportunity to talk about the company’s future in virtual worlds, describing how “Omniverse brings together Nvidia’s expertise in AI, simulation, graphics infrastructure and computer science “.

“This is the tip of the iceberg of what’s to come,” Huang said in a statement containing the company’s results Wednesday.

Virtual worlds have never been so real. And while investors inclined to get ahead of the trend may immediately look at the high-tech stocks that are fueling the future of the metaverse, the opportunities are actually much more diverse.

The luxury sector is one of them.

Digital assets could constitute 10% of the addressable luxury goods market by 2030, representing a revenue opportunity of 50 billion euros ($ 57 billion) and an increase in industry revenue of up to 25% , according to a new study from Morgan Stanley.

“People today spend more time interacting with their friends on social media and gaming platforms than in real life in the developed world,” said the bank’s team, led by Edward Stanley, Edouard Aubin and Elena Mariani. “As more and more aspects of people’s lives move to the Internet, the demand for digital fashion and luxury products is expected to increase dramatically in the years to come,” the team added.

There are basically two different branches of metaverse opportunities for luxury business.

The first concerns games, especially video games which are social and place a lot of emphasis on the image of the player. Allowing users to pay to add luxuries to their avatars online, including through revenue sharing agreements with developers, is on the rise, according to Morgan Stanley. Online events, such as music festivals, are tangential to games and have the potential to reach a large audience of young consumers. In addition to luxury brands, the beneficiaries of the event trend include


Universal music group

(UMS.Netherlands).

The second metaverse opportunity is in non-fungible tokens (NFTs), which are tokenized versions of digital media hosted and traded on the blockchain – the decentralized ledger technology that underpins cryptocurrencies such as


Bitcoin

and


Ether.

Luxury companies can sell exclusive versions of their digital products for a hefty price tag: Dolce & Gabbana sold nine NFTs for $ 5.7 million, according to the bank’s research. NFTs are only gaining popularity.

Each addressable market is expected to contribute a similar sales increase to the luxury sector in a bullish case, according to Morgan Stanley, but NFTs are likely to be more profitable.

“While gaming collaborations are, in our view, more advanced in their ability to generate revenue and have a broader halo effect for the industry, NFTs present a larger EBIT opportunity for the rest of the world. the decade, ”the bank’s team said. Game collaborations could make up 40% of Metaverse revenue by 2030, but only 20% of profits.

While digital media revenues remain negligible for luxury brands, the opportunities only increase, according to Morgan Stanley. While the Metaverse will take years to develop and there remain risks to its long-term future, social games and NFTs are short-term games.

The entire luxury sector is likely to benefit from these trends, but some companies are better positioned than others. Namely, “soft luxury” brands – which make ready-to-wear items such as leather goods and shoes – are better positioned than “hard luxury” groups specializing in jewelry and watches.

And while it’s true that users will be more inclined to wear branded leather jackets than Rolexes in the Metaverse, the Morgan Stanley team have a winning choice:


Kering

(KER.France).

The French luxury goods group owns brands such as Gucci, Balenciaga, Yves Saint Laurent, Alexander McQueen and many more. It is best placed given the demographics of brands, as well as the company’s lead in innovative digital collaborations, according to the bank.

Balenciaga, for example, has a new partnership for online gaming merchandise Fortnite. Users can shop for real-world clothing lines and see an in-game billboard that also appeared simultaneously in New York, London, Tokyo, and Seoul.

Gucci, for its part, has a collaboration with the online gaming and game creation platform


Roblox

(RBLX) allowing players to purchase virtual products. There was so much hype about buying a virtual Gucci handbag that it was resold in the online marketplace for more money than its real-world counterpart, according to Morgan Stanley.

Kering shares, which are also traded in the US over-the-counter markets, have climbed more than 25% this year.

“Metaverse is not just a futuristic idea. Early versions already exist,” the Morgan Stanley team said. “This offers a great opportunity for digital-only brands. But luxury brands, with their vast intellectual property. built over decades, should be among the main beneficiaries, ”he added.

Write to Jack Denton at [email protected]


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