The term “metaverse” means different things to different people. Even the tech titans of today have different definitions as they race to occupy large areas of this sprawling virtual world.
For now, most would agree that the term refers to a visually immersive digital setting in which people can interact with one another. It’s a place where people can engage in many of the things they use the internet for today - socializing, gaming, shopping, and learning - but in a way that feels more tactile and engrossing.
Investors are starting to see the potential of this new wave. The challenge, however, is that the metaverse, like the ocean, is vast. Investing in its potential is difficult because it still isn’t clear where the edges are and how deep it runs.
The solution is to invest in the core technology that powers the metaverse: semiconductors.
Semiconductor Demand is RisingOne of the most crucial components powering the metaverse is semiconductors. Data from Accenture showed that 85% of the semiconductor executives surveyed believe that the metaverse will have a positive impact on their organizations. Almost half stated that it will have a breakthrough or transformational impact. These findings illustrate a key point: an investment in the metaverse is an investment in semiconductors.
Demand is growing. Macroeconomic research from McKinsey forecasts an average annual growth rate of 6 to 8 percent a year up to 2030. This would make semiconductors a trillion-dollar industry by the end of the decade. This growth presents enormous potential for semiconductor companies. This demand, combined with the semiconductor’s industry average gross margin of about 54% compared to the total market average of 36%, suggests that investors are poised to benefit.
The Semiconductor Industry is StabilizingA semiconductor shortage began as Covid-19 spread. This shortage started when car companies dramatically reduced their orders for semiconductor chips based on the assumption that demand for cars would drop. However, at the same time, other industries that also rely on semiconductors, grew aggressively. People needed more digital solutions and hardware as they spent more time interacting with others virtually.
Later, when the auto industry was ready to increase their orders for semiconductor chips there was less capacity because the chip manufacturers were busy trying to meet demand elsewhere. This shortage was worsened by other circumstances including an ice storm in Texas that interrupted manufacturers like NXP, Samsung, and Infineon, labor shortages in China, and a fire at the Renesas plant in Japan.
These events have prompted the industry to respond with measures that are stabilizing the industry. Currently, there are plans to build 29 new semiconductor factories in places like China, Taiwan, the US, Japan, and Korea. This commitment to strengthening the resilience of the industry is good news for long-term investors.
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