This is a sponsored article from Wellington Management.
By Yash Patodia, Global Industry Analyst
As part of Wellington’s Tech WELLcovered series, Global Industry Analyst Yash Patodia dives deeper into the key opportunities behind the metaverse hype that is dominating tech headlines.
The metaverse will no doubt transform the way we work, play and live. It will soon enable you to have coffee with your friends all over the globe, attend metaverse concerts front row with millions of fans and work side-by-side with colleagues that are continents away. The possibilities are endless as the metaverse extends society into the digital realm, combining the immersive experience of real life with the ease of creation of the digital world. As the next big technology revolution, the metaverse’s estimated market size (US$297 billion by 2024) could far exceed spending on global gaming (US$219 billion by 2024), a digital entertainment sector that is already larger than movies and sports combined. This may have broad implications for countless industries — including entertainment, e-commerce, and advertising — and create a whole range of new jobs and investable opportunities (Figure 1).
In this short piece, we highlight how the metaverse represents a step change in investment opportunity for the Asia tech sector, as many of the critical enablers of this innovation are located in Asia.
Investing in the metaverse
The growing excitement for the metaverse is powered by its incredible potential applications and the tremendous value they could create. But importantly, the technology enabling this seemingly magical innovation is still in development. What some overlook is that the biggest bottleneck today is not software or imagination — but rather the necessary upgrades to the metaverse’s foundational hardware infrastructure.
Many of the ingredients for an immersive metaverse exist today (e.g., advanced chips, sensors and AR/VR experiences) but need to become much faster, smaller and more integrated — creating an enormous potential investment opportunity. Critically, Asia is the tech supply chain of the world, building many of the essential components driving this innovation. For instance, Asian companies manufacture nearly 70% of global semiconductors1 and could thereby benefit from this revolution for years to come. Though there are many ways to invest in the metaverse technology stack (Figure 2), we think hardware infrastructure (Figure 3) offers today’s most compelling investment opportunities.
Hardware infrastructure opportunities
Significant technological leaps need to be made to turn the metaverse dream into reality. The following are a few areas of required progress in hardware infrastructure and potential Asia tech markets that could benefit:
- Improved processing power: To reach the processing power capable of rendering immersive metaverse experiences requires an order-of-magnitude increase in processing speed. These speeds are at least one or two chip generations in the future (~four to eight years) and require substantial investment over the long term, including in:
- Advanced chips from Taiwan and China
- More semiconductor equipment (e.g., lithography, testing) from Japan and South Korea
- Increased foundry capacity from Taiwan and South Korea
- Better manufacturing materials and packaging processes from China, Japan, Taiwan and Malaysia
- Advanced chips from Taiwan and China
- Stronger networks: Network bandwidth will need upgrades to support higher quality streaming in areas such as gaming with virtual and augmented reality. Rendering an individually unique 3D world around you takes up considerably more data — potentially hundreds of times more per person.
- Lower latency: Today’s data latency is well over what is tolerable for the metaverse. The metaverse will require more and faster switches, fibre optics, networking cards, servers and edge processing. The companies enabling these breakthroughs range from the mid-sized Taiwanese companies building network switches and communications chipsets to the Japanese firms specialising in high-precision integrated circuit substrates for advanced semiconductor packaging.
Bottom line
The metaverse will likely create unimaginable experiences, innovative technologies and new digital economies with jobs (and even industries) that don’t yet exist. But what excites us most today is the massive hardware investment necessary to realise the metaverse’s full potential. Countless Asia tech companies will help power this technology and could be long-term winners in this structural trend.
To explore what it means to have tech WELLcovered, visit Wellington’s tech and innovation website or read their full research insights on the future of work, experiences, life stages and legacy.
This is a sponsored article from Wellington Management.
1Source: Boston Consulting Group, April 2021.
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