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3 Stocks to Buy on Morgan Stanley’s Prediction that the Metaverse Will be Worth $8 Trillion

The metaverse is gaining steam with Facebook changing its name and companies investing in building the new digital frontier. Moreover, metaverse or virtual reality is being used in several industries, especially in real estate. Morgan Stanley expects the metaverse to be an $8 trillion addressable market soon. Hence, investing in fundamentally sound metaverse stocks Microsoft (MSFT), Autodesk (ADSK), and Fastly (FSLY) could be profitable.

The metaverse refers to a centralized virtual world parallel to the physical world of reality. Either in virtual reality (VR) or augmented reality (AR), or on a screen, the metaverse is predicted to provide an overlap of the physical and digital realities, which has been gaining massive interest lately. Facebook has recently rebranded to Meta, changing its name to Meta Platforms Inc. (FB). “We believe the Metaverse will be the successor to the mobile internet,” Facebook CEO Mark Zuckerberg said.

Now, multiple companies are building their virtual realms, intending to attract people in the form of their digital ‘avatars.’ Moreover, the real-estate business in the metaverse is gaining some steam. In November, in a virtual reality world called ‘Decentraland,’ operated by the Metaverse Group reported, 116 parcels of land sold for an equivalent of about $2.5 million in cryptocurrencies.

Last month, Wall Street firm Morgan Stanley (MS) predicted the metaverse as an $8 trillion addressable market and likely to become the “next-generation social media, streaming and gaming platform.” Therefore, metaverse-related stocks Microsoft Corporation (MSFT), Autodesk, Inc. (ADSK), and Fastly, Inc. (FSLY) might be solid buys based on their strong fundamentals.

Microsoft Corporation (MSFT)

MSFT is a software behemoth providing software services, solutions, and devices worldwide. The company has a more than $2 trillion market capitalization.

On December 2, MSFT and CVS Health Corporation (CVS) announced a strategic alliance for developing innovative solutions for consumers’ health. In the scenario of accelerated transformation initiatives in the healthcare sector, this alliance can prove profitable for MSFT.

On December 1, MSFT made Teams Essentials, a stand-alone affordable Microsoft Teams offering designed for small businesses. The collaboration solution should be in demand given the popularity of remote working and hybrid work structures.

For the fiscal first quarter ended September 30, MSFT’s total revenue increased 22% year-over-year to $45.32 billion. Operating income increased 27.5% from the prior-year quarter to $20.24 billion. Net income and EPS stood at $20.51 billion and $2.71, registering an increase of 47.6% and 48.9% year-over-year, respectively.

Analysts expect MSFT’s EPS to improve 14.3% year-over-year to $9.20 in the ongoing year (fiscal 2022), while Street revenue estimate of $196.75 billion for the current year indicates a rise of 17.1% from the prior year. In addition, the stock has beaten consensus EPS estimates in each of the trailing four quarters, which is impressive.

MSFT’s stock has gained 59.2% over the past year to close yesterday’s trading session at $339.40. It has gained 52.6% year-to-date.

Autodesk, Inc. (ADSK)

ADSK is a global 3D design, entertainment software and services, and engineering provider. The company’s offerings include AutoCAD Civil 3D, a surveying and analysis solution, BIM 360, a cloud-based software, and AutoCAD, a professional design software.

On November 30, a spatial data company, Matterport, Inc. (MTTR), unveiled a new plugin for ADSK Revit® customers, which is a BIM software used for spatial designing. About this new plugin, Jim Quanci, Senior Director of Autodesk Developer Network, said, “The launch of Matterport BIM file and the Matterport Revit Plugin both shows Matterport’s commitment to the AEC industry and how using BIM practices and technology platforms can increase efficiency and automate workflows for Autodesk customers.”

In October, ADSK declared the pricing of its sustainability bond offering of an aggregate principal amount of $1 billion in 2.4% Senior Notes due 2031. The company intends to use the net proceeds for financing or refinancing certain eligible projects in relation to environmental and social environments.

ADSK’s total net revenues increased 18.2% year-over-year to $1.13 billion in the fiscal third quarter ended October 31. Non-GAAP income from operations improved 27.1% from the same period last year to $365 million. Non-GAAP net income per share rose 27.9% from the prior-year quarter to $1.33.

The consensus EPS estimate of $1.44 for the current quarter (ending January 2022) indicates a 22% year-over-year increase. Likewise, the consensus revenue estimate of $1.19 billion for the ongoing quarter reflects a rise of 14.9% from the same period last year. Moreover, ADSK has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.

ADSK’s stock has declined marginally intra-day to close yesterday’s trading session at $268.88.

Fastly, Inc. (FSLY)

FSLY is an edge-cloud platform used for processing, serving, and securing customer applications internationally. The company serves customers in digital publishing, media and entertainment, online retail, travel, and fintech services industries.

In August, FSLY made its next-gen web application firewall (WAF) in the, Inc. (AMZN) Web Services Marketplace, both as a private listing and a public offering. This can significantly profit the company by providing superior protection to the fast-evolving tech industry.

For the fiscal third quarter ended September 30, FSLY’s revenue increased 22.8% year-over-year to $86.74 million. Non-GAAP gross profit came in at $49.86 million, registering an improvement of 17.9% from the prior-year quarter.

Street expects FSLY’s EPS to increase 13% year-over-year in the next year (fiscal 2022). Likewise, Street revenue estimate of $419.41 million indicates a rise of 20% from the current year. FSLY has beaten consensus EPS estimates in three out of the trailing four quarters.

Over the past five days, the stock has gained 2.1% to close yesterday’s trading session at $40.31.

MSFT shares were trading at $328.34 per share on Tuesday afternoon, down $11.06 (-3.26%). Year-to-date, MSFT has gained 48.86%, versus a 25.17% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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