Metaverse is one of the biggest buzzwords on Wall Street right now and Morgan Stanley has picked stocks that could benefit from the opportunity in China. There's no clear definition for the metaverse , but it loosely refers to the idea of people living, working or playing in virtual worlds . Right now, that may be through a smartphone but eventually, it will move to advanced virtual reality headsets. In China, the total addressable market could be 52 trillion yuan — or around $8 billion, Morgan Stanley analysts said in note published this month. The metaverse will encompass companies from industries including internet, e-commerce, semiconductors, entertainment and many more. The thesis: 'Next-generation platform' "The Metaverse will become the next-generation platform to replace the mobile internet," Morgan Stanley said. It will include social, media and entertainment offerings "with an immersive experience, high engagement, and e-commerce for goods and services with a high transaction conversion and more targeted marketing," the analysts said. Monetization for companies will likely come from advertising and cuts from spending transactions, the U.S. investment bank added. Online gaming will be a key driver, but eventually, offline experiences like music concerts and and shopping experiences could move into the metaverse, Morgan Stanley said. Other industries such as education could also see some metaverse applications. However, Morgan Stanley said "mass adoption will take a long time given major technological and regulatory hurdles." The investment bank said there will be a better virtual experience when there are hardware and semiconductor improvements in virtual reality headsets. Meanwhile, China has looked to curb the amount of time children under 18 years old spend playing online games to prevent addiction. Beijing has also bought in new regulation in areas like data protection . These moves suggest "higher regulatory hurdles in China versus other markets," Morgan Stanley said. Morgan Stanley names these stocks as the best way to play China's metaverse opportunity. Hardware stocks Morgan Stanley recommends GoerTek, Sunny Optical and Luxshare as stocks in the hardware space. Shenzhen-listed Goertek is an assembly partner for Oculus, the virtual reality company owned by Meta. It has sell other technologies which the the investment bank expects "to be early beneficiaries of the growth in the VR products assembly market." Hong Kong-listed Sunny Optical makes components for VR headsets and currently sells to Oculus and Taiwanese consumer electronics firm, HTC. Morgan Stanley expects Sunny Optical to continue to benefit from VR "as product demand increases." Morgan Stanley said Shenzhen-listed Luxshare — which assembles Apple's Airpods — "stands a good chance of also undertaking the assembly of upcoming AR/VR products." Semiconductors For metaverse semiconductor plays, Morgan Stanley recommends MediaTek , Will Semi and TSMC which "offer early exposure during the infrastructure development cycle." Taiwan's TSMC is one of the leading-edge chip manufacturers and Morgan Stanley said it could make some of the silicon for VR headsets. Looking into company fundamentals, we believe Tencent has a comprehensive suite of capabilities to develop the Metaverse. Morgan Stanley Will Semi already sells image sensors to Oculus for the company's VR headsets. MediaTek's next-generation WiFi chips, which promise faster speeds, could be key to future VR devices too, Morgan Stanley said. Internet companies "Internet platforms with leading positions in social and games ... will likely benefit at a later stage when use cases, adoption and monetization become more visible," Morgan Stanley's report said. Two companies likely to benefit are Chinese technology giants Tencent and NetEase , the country's two biggest gaming players. "Tencent has been aggressively investing in Metaverse-related industries including gaming, social and hardware development, and we think the company has the most comprehensive coverage when compared with its peers," Morgan Stanley said. "Looking into company fundamentals, we believe Tencent has a comprehensive suite of capabilities to develop the Metaverse." Tencent has a huge portfolio of popular mobile and PC games, it is investing in artificial intelligence and cloud computing and it runs WeChat, China's most popular messaging app with over one billion users. WeChat has a payment function called WeChat Pay. "These are all key infrastructure and capabilities needed to build the Metaverse," Morgan Stanley said. For NetEase, the U.S. investment bank said the company has "strong gaming" research and development capability. It also has "abundant self-developed intellectual property (IP)" that has "laid a solid foundation for migration to the Metaverse," the analysts said.
