By Luke DowneyNovember 8, 2021

The simplest way to play the metaverse boom

“The metaverse” is on everyone’s lips these days. But what is it? 

It’s a virtual world—or universe—based in augmented reality (AR). AR is an enhanced, interactive experience of the real world. Essentially, it’s a way to bring together the virtual world and the real one with 3D visuals. And it’s technology you can access through your smartphone. 

Different visions of the metaverse involve gaming, shopping, socializing, working, and all sorts of other activities. 

The important thing to keep in mind is that no one knows exactly what these virtual spaces will look like as they evolve. (If you’re familiar with Ernest Cline’s 2011 cult sci-fi classic Ready Player One—made into a Speilberg film in 2018—you’ll have a good idea of what a metaverse is… and how big this trend could become.) 

No matter how things evolve, there’s a lot of money at stake… especially for companies looking to advertise or sell virtual goods.

As you’ve probably heard, Facebook rebranded itself as Meta a couple of weeks ago… while announcing its plans to focus on the metaverse. And it’s not the only company jumping aboard the trend. Microsoft, Roblox, and others are already making investments in the space. 

The writing is on the wall. So get ready… The metaverse is coming.

So how should investors play the trend?

Today, I’ll show you an easy way to profit as the metaverse takes off… using the “metaverse infrastructure” strategy. 

One sector will power the metaverse

Semiconductors are a big part of our modern lives. These computer chips run cars, computers, video games, appliances, just about any smart device you can think of… and a lot more. 

If you’ve read some of my previous articles, you know semiconductors have been a big theme for me this year. As I said over the summer, if you’re not investing in semiconductors, you’re missing out

Well, the metaverse and its immersive virtual reality experiences will need to run on high-powered semiconductors. Building out the metaverse will require more graphics processing units (GPUs)… that means more demand for chips. 

Put simply, by buying semiconductor stocks, we’re investing in the “metaverse infrastructure.” This means buying the stocks of companies that will benefit from the growing demand for hardware, like processors and other semiconductors that can handle these complex, 3D worlds.

A good analogy is the California gold rush of the mid-1800s. Sure, a few miners struck it rich, but most of the folks who poured into California to mine barely made a penny. 

Research shows the people who made the most money were not the miners… but rather, the suppliers of tools, provisions, lodging, clothing (like Levi Strauss) and so on… whatever the miners needed to operate. 

In the investment world, these complementary businesses are called “picks and shovels” plays—a reference to the fact the “real money” was made by those who sold these critical supplies during the gold rush. 

Put simply, the smart play often involves investing in businesses that will prosper no matter which company comes out ahead in a gold rush. The consistent demand for supplies—as well as related goods and services—can build fortunes. 

Nobody knows what the metaverse will bring, or who the winners will be. But we do know semiconductors will be needed to power these complex online worlds.

Richard Kerris, an executive from chipmaker NVIDIA, recently said, “You might not think you’ll be in the metaverse, but I promise in the next five years all of us will be in one way or another.” 

Of course, it takes more than an interesting quote to get me to invest in a trend. 

Big Money is plowing into semiconductors

Remember… We always want to follow the Big Money.

Below, I’ve shared the Big Money charts for two of the hottest semiconductor stocks, NVIDIA (NVDA) and Advanced Micro Devices (AMD). Both of these stocks have been cruising higher in 2021… with plenty of Big Money buy signals—represented by the green bars in the charts below:

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As you can see, there’s a lot of green going on with AMD and NVDA. And I’m betting a lot of this rise has to do with the prospect of metaverse demand for their chips. 

And just this week, AMD reported it will provide the special chips needed to power the data centers Meta (aka Facebook) is building as it pursues its metaverse vision.

While you could buy AMD and NVDA individually… when you’re looking to invest in a theme, an exchange-traded fund (ETF) is often the best way to participate… You take on less concentrated risk compared to buying individual stocks. 

A great way to play this theme is with a diversified fund full of quality semiconductor stocks like the VanEck Vectors Semiconductor ETF (SMH)

As you can see on the chart below, SMH has been a one-way train higher… To me, those green bars echo the “stairway to heaven”: 

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That’s the juice! The semiconductor sector is being propelled higher with Big Money demand… don’t fight it. 

The SMH fund’s top holdings include NVIDIA (NVDA) and Advanced Micro Devices (AMD)… It also includes a ton of other high-quality firms, like Taiwan Semiconductor Manufacturing (TSM) and ASML Holding N.V. (ASML).

For those seeking an easy way to use my “metaverse infrastructure” approach, look no further than SMH. This fund holds chunky positions in top semiconductor companies that’ll benefit as the metaverse expands and evolves in the coming years. 

The metaverse is coming fast. The technology powering it starts with semiconductors—a sector that, as you can see from the Big Money charts—has been on fire lately. Investors looking for a one-click way to ride the trend safely (with a diversified bucket of semi stocks) should buy the VanEck Vectors Semiconductor ETF (SMH).

And if you want access to a portfolio full of the individual growth stocks on my radar right now, check out my newsletter, The Big Money Report.

Luke Downey is editor of Curzio's The Big Money Report, which recommends the best long-term growth stocks. Luke honed his strategy over many years at Wall Street institutional derivatives desks, and as co-founder of investment research firm Mapsignals. Luke is also an options instructor with Investopedia Academy.
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