By Tim Courtney, Chief Investment Officer
Technology keeps doing what it does ― rapidly advancing ― and has caused a surge of interest in digital investments, such as cryptocurrencies and non-fungible tokens (NFTs). This sort of innovation has also led to increasing interest in the metaverse, a virtual world where people can “go” to interact with others, visit museums, attend concerts and even invest.
Virtual “real estate” investments in particular have gained traction, some even selling for enormous amounts of money. Prices for these plots of virtual property have surged 500% since the metaverse first opened, with one company spending $2.5 million on a digital property.1
Big Tech is spending heavily in the space. Microsoft has been in the news for acquiring Activision Blizzard, a game developer they believe could help them in the virtual space, for $68.7 billion.2 This is an amount of money that is almost never seen today for purchases of real estate investment trust (REITs), materials or energy companies.
However, though virtual reality and gaming are attracting large amounts of investment during this time of quarantines and social distancing, the market may now be grappling with the thorny issue of real-world needs.
Digital metaverses are powered by the infrastructure in the physical world. Those in the metaverse still need food, energy, shelter, etc., and the prices for these things have risen sharply over the last year.3
Much of the increase in inflation has come from pandemic-related shutdowns and the inability of the global supply chain to restart. However, some of the increase is likely coming from so many who have exited the workforce and the resulting labor shortages that followed.4 Some may also be from the relatively low amount of investment going into real world production and infrastructure over the last decade. Europe is a good example of this currently. Energy prices are hitting all-time highs as shortages from outages and mothballed nuclear power plants have been difficult or impossible to make up from other sources.5
No doubt technology will keep doing what it does and eventually provide increased productivity that will help with shortages. However, these shortages remain a risk for consumers and the overall economy, and there are opportunities for companies that can solve infrastructure problems, supply chain difficulties and labor shortages. Because of this, we continue to recommend well-diversified portfolios of companies that provide digital and real solutions and look for areas that may now be promising due to persistent under investment.
- CNBC (1/12/22) — Investors are paying millions for virtual land in the metaverse
- The New York Times (1/19/22) — How Microsoft bought Activision Blizzard
- Reuters (1/27/22) — Commodity prices likely to be hit by slowdown before end of 2023: Kemp
- Forbes (1/12/22) — Why is inflation rising right now?
- Bloomberg (12/5/21) — Europe’s power crunch shuts down factories/prices hit record
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