• Credit Suisse expects the metaverse to “bring profound changes” to today’s technology and media.
• Hardware and semiconductor companies will benefit as better VR and AR devices hit the market.
• Manish Nigam, head of global sector research at the bank, shared his top twelve stock picks.

Since Facebook’s rebranding to Meta last October, many investors have turned their attention to the Metaverse and the potential profits to be made there.

But the so-called “crypto winter” of recent months – which has seen major tokens like bitcoin and ether tumble almost 50% from their November highs – raised some concerns. Similarly, investors were not really reassured by the spectacular drop of 25% in Meta shares last week, when the company announced that its metaverse business lost $10 billion in the fourth quarter of 2021.

Yet recent problems have not stopped companies and investors even pouring billions of dollars into the metaverse. And given the gargantuan amount of investment and hype surrounding this burgeoning field, one thing is certain – like it or not, the era of the metaverse is approaching.

A team of analysts from Credit Suisse, led by Manish Nigam, Global Sector Research Head, agrees.

“The Metaverse is set to eventually bring sweeping changes to the entire tech, media and telecommunications industry,” Nigam wrote in a Feb. 8 note, before providing the caveat: “Perhaps none as early or as extensive as in consumer electronics”.

On a broader level, Nigam and his team have divided the industries that will be most impacted by the rise of the metaverse into three broad categories, with the first focusing on content creation companies. The second of the three categories includes hardware and semiconductor companies, including the component, assembly and display subsectors.

“For semiconductors, the metaverse fits into our data paradigm thesis, with the metaverse permeating the create/capture, store, transmit and analyze view of the data economy and poised to benefit from it as the power/performance improvement unlocks more data consumption and use cases for silicon,” Nigam said. “For hardware, the metaverse would drive augmented reality/virtual reality opportunities in assembly, display, camera/optics, PCB/substrate, MLCC, connectors and batteries.”

Breaking semiconductors

The major issue currently facing metaverse adoption is balancing improving computing power performance while decreasing cost, Nigam wrote.

For example, he estimated that to support a fully immersive metaverse setting in Fortnite, a 1,000x improvement in computing power is required. But with high-end gaming PCs already easily costing over $10,000 in some cases, companies need to find a way to cut costs while speeding up the user experience.

At the center of this question are semiconductor chips, which are included in thousands of consumer products, including computers and game consoles. Nigam called semiconductors “the most exploited metaverse game”, noting that “semiconductors are becoming the building blocks of the new data economy – albeit with higher growth, higher yields and yes , a higher level of cyclicality – but basics nonetheless”.

With or without the metaverse, semiconductors have become an increasingly important part of our daily lives. Since 1977, the number of semiconductor chips per capita has increased from two to 146, or about 70 times magnitude, largely due to the proliferation of personal computers and cell phones. And while semis have grown from 1% to around 3% of global market capitalization in recent years, Nigam still sees upside potential of around 8% by 2030.

“Given our view that the metaverse is a pervasive theme in our data paradigm, we would say that our entire universe would benefit, especially as semi-industry sees accelerated growth of $554 billion in 2021. to $1 trillion by 2030,” Nigam wrote. “The sectors most likely to be influenced by the metaverse are probably: computing, memory and connectivity.”

The race for materials

Leading augmented reality (AR) and virtual reality (VR) platforms have already seen “advancements in chipsets, display, optics and tracking solutions to enhance user experience,” said nigam. He also noted that the weight of these devices has noticeably decreased thanks to better design changes.

However, the two platforms have still not been able to fully resolve their issues.

For example, Fresnel lenses used in virtual reality to provide better immersion introduce the problem of chromatic aberration, or color distortion, which designers have so far only been able to address by adding more elements. lens, which weighs down the devices. And while new lens materials have been created, they will still take some time to reach commercialization, Nigam wrote.

On the other hand, the emphasis in AR is that users observe an additional layer of virtual integration on top of the real world, which requires optical combiners. But while several types of optics have been adopted in modern AR devices, each has its own drawbacks, such as double images, distortion, higher costs, discomfort, and lower image resolution. Overall, Nigam said, the industry is still exploring the best optimal solution for AR devices.

Finally, true immersion in the metaverse will require major innovations in display mechanisms, since metaverse displays require much closer proximity to consumers’ eyes, as opposed to the distance of traditional screens. Along with this design challenge, displays will also need to adopt smaller sizes, lower power consumption, wider views, higher resolutions, refresh rates and brightness levels for optimal performance, said nigam.

With all of these innovations needed for the metaverse to reach its full business potential, well-positioned companies have plenty of opportunities to capitalize on them. Below are 12 stocks that Nigam and his team have recognized as their top picks in the hardware and semiconductor category. The stocks cover four sub-sectors – assembly, display, passives and semiconductors – and are listed below with each company’s ticker, market cap, price target and metaverse theme.