Yesterday I dug into Andy Snyder’s pitch for Manward Letter about what he calls “XRI,” which is really a “metaverse” story about the rising demand for immersive 3D content for both work and play.

And today we continue that voyage — we covered his first mega-boom stock that he says he thinks will start surging as soon as January (don’t hold your breath on that, the argument seemed to be based on Apple releasing a VR headset in January… and the probability of that seems low now), but he dangles some more bait to entice subscribers, too, in the form of three “bonus” metaverse stocks… so let’s look for those now.

Here’s how he puts it in the ad:

“I believe the metaverse revolution, just like the internet revolution, will create multiple huge stock market winners…

“And while I believe my #1 metaverse company will be the company that will profit most from the metaverse…

“I believe three more companies will be the next big winners in this new, potentially $13 TRILLION market.

“Each one could explode higher in the weeks ahead…

“Starting with a company that is doing what Amazon did for the internet… but for the metaverse.”

And we’ll go through them in order… here’s your first bunch of clues:

“Bonus Metaverse Stock #1: The Amazon of the Metaverse….

“Inc. magazine says it’s… ‘bringing online retailers into the future.’

“It’s doing this by giving companies the tools to launch 3D and virtual reality products right on their websites.

“This gives shoppers a way to view products that were once limited to brick-and-mortar stores.

“Shops that use this technology have already seen an incredible 94% jump in sales.”

OK, so that sounds kind of cool. But also a little familiar. What other clues do we get?

“More than 300,000 stores have already partnered with this company to use its virtual shopping platform…

“Including Anheuser-Busch… Louis Vuitton… Pepsi… Nestlé… and Tesla… just to name a few.

“And Bloomberg reports that star fund manager Cathie Wood thinks it… ‘could be the next Amazon.'”

I don’t know if that’s as much of an endorsement as it might have been a year ago, when she was on top of the world, (Cathie Wood’s Ark Investments led both the bubble inflation in 2020 and 2021, and the collapse in 2022), but that “Amazon of the Metaverse” stock is clealry Shopify (SHOP). One of my favorite companies, but certainly a terrible stock over the past year.

My last look at Shopify was in October, when they reported their most recent earnings — here’s what I said:

Shopify (SHOP) seems to have finally reset to some degree, with growth stabilizing and re-accelerating a little, after several quarters of slowing growth, and they ended up with a smaller loss than had been expected. They also probably got a bit of a boost from the strong US dollar, since a lot of their expenses (employees) are in their home country of Canada, but most of their business is in the US. E-commerce continues to grow nicely, their gross merchandise value (the amount of sales made on Shopify’s platform) grew by about 11% from a year ago, and SHOP’s revenue grew 22% over that same time period.

They also were out ahead of the “tech companies spend too much” worry a few months back, they had a mass layoff of 10% of their workers over the Summer, and they’re continuing to speak rationally about costs… we’ll see how that goes over a longer period of time, but right now the arrows are again all pointing up and to the right as investors begin to cautiously embrace SHOP again.

This is a case where the underlying business is growing very strongly, the entrepreneurs and retailers who use Shopify continue to open new stores and sell more stuff, and buy more services from Shopify (they’re trying to offer a more compelling alternative to Amazon, including SHOP’s recent purchase of logistics company Deliverr). The big challenge remains Amazon, which has substantially refocused on providing merchant services in the past few quarters and which has the benefit of a decade’s investment in their fulfillment network — Shopify won’t catch up with Amazon, but they can offer a pretty compelling alternative for merchants, including giving those merchants more control. I’ve been too optimistic about SHOP’s ability to sustain its growth following the pandemic, but do love Tobi Lutke’s vision and the singleminded effort he’s making to build a better retail platform. Nothing here to really change my thinking about Shopify when it comes to valuation, they can clearly become profitable with this very large user base… but they’re continuing, in Bezos-like fashion, to keep the focus on building the business and improving the products, including with a pretty strong push now to sell in-person POS terminals that integrate online and offline sales management. I won’t make this a much larger position anytime soon, just because my portfolio is still probably overweight in these kinds of long-duration growth ideas, and those kinds of stocks really don’t have a “floor” in a crisis, but I’m happy to hold.

Market expectations are relatively unchanged in the last couple months, and the share price has also been mostly staying in the same low-$30s area. Since this is a retail story, the fourth quarter will be of exaggerated importance so investors will be watching closely when they update us on the holiday season and on Q4 earnings (the earnings report will be in mid-February) — so far the news is OK, with Black Friday and Cyber Monday volumes indicating sales growth of 19% for Shopify merchants (21% in constant currency), which will trickle through to Shopify in the form of user fees and payment processing revenue. That’s not quite as big as the growth in 2021, when the growth for that key shopping period was 23%, but I’m pleasantly surprised that the deceleration of growth was that minor.

I’d say it’s a LOT safer to buy Amazon (AMZN) at these levels, they are nowhere near giving up their dominance of online retail in the US, and the shares have been beaten up even more than Shopify in the past few months because of concerns about competition for Amazon Web Services from Google and Microsoft, but Amazon is growing almost as fast as Shopify, despite managing merchandise volume that’s more than 4X the size of Shopify merchant order flow (and collecting more from those orders, thanks in part to fulfillment services on a global scale that we might never see anyone replicate), and has many more levers they can pull in ecommerce (thanks in part to 160 million Amazon Prime subscribers).

I like both companies, and Shopify is a much cleaner story, with a much clearer vision now that Jeff Bezos is no longer the primary driver at Amazon… and their customer base means they should be able to remain the leading “retail operating system” for smaller retailers, which could provide meaningful growth for a very long time… but I think the long-term risk is much lower at Amazon.

If you’re interested in what that “metaverse” stuff means for Shopify, I wouldn’t say it’s particularly critical yet — but it is a growing focus. They have a nice “insights and trends” piece up now on how AR is changing shopping, and how Shopify is part of that, so that’s worth a browse if you’re trying to get your head around this idea.

Next!

“Bonus Metaverse Stock #2: This $5 Stock Could Be the Gateway to the Metaverse

“You see, I believe the biggest growth in the metaverse will be in industrial applications.

“Just as computers and microchips are part of our everyday lives, augmented reality soon could be as well.

“It’s the start of something big.

“And I believe one company will be at the center of it all.

“It’s a software firm that specializes in turning the real world into lifelike 3D imaging.

“It can take any physical space and transform it into an accurate and photorealistic digital copy.”

Some of you are going to know that one already, just from those clues… but let’s check the details to be sure…

“Already the company has partnerships with Meta… the real estate giant Redfin… clothing retailer H&M… Airbnb… and Hyatt Hotels.

“It now has 5 million buildings and 18 billion square feet of spaces in its 3D digital library…

“And its number of subscribers surged 116% year over year…”

And an optimistic forecast:

“Wall Street forecasts the virtual world builder will see… ‘revenue triple by 2025.’

“With an under-$5 price right now, that could translate into a huge win.”

That’s Matterport (MTTR), and it’s now WAY under $5 (last I checked, at $2.50, on what looks to be a rough day in the markets). Matterport is an interesting but still wildly speculative story, a company that’s trying to sell customers on the idea of building interactive “digital twins” of real properties as a tool (for selling apartments or offices, visualizing possible changes, etc.), and charging a small maintenance fee for using those virtual models. I’ve bought small speculative options positions in Matterport in the past, just because I think it’s a cool idea and I can imagine it possibly becoming a standard tool of the real estate industry — but it’s certainly not proven or anywhere near profitable.

At some point, it may well be worth taking a chance on Matterport building something interesting — but the building part is taking much longer than they hoped, so you’d have to be ready for the risk and quite patient. When they did their SPAC merger two years ago, they had a “run rate” of annual revenue of $100 million and predicted that they would reach $202 million in 2022 and $323 million in 2023. The actual trailing twelve-month revenue as of last quarter is only $122 million, so they’re growing the top line at roughly 10% a year, not the 50%+ they envisioned. The business needs scale to work, their overhead and marketing costs are pretty high, so they are pushing out their potential profitability much further into the future now.

Pretty much all of the similarly disappointing growth stories and as-yet-unproven businesses that went public during the SPAC mania have been stock market disasters over the past year, so Matterport isn’t necessarily uniquely terrible… but it is clearly growing a LOT more slowly than expected, and it seems likely to me that as the real estate business pulls back and licks its wounds a little bit, thanks to the rapid rise in interest rates that is crushing asset values, we’ll probably see Matterport having a harder time convincing businesses to pony up for a fancy “digital twin” toy for their properties. That could be too pessimistic, one never knows — maybe a harder selling environment will make Matterport’s digital selling tools or planning tools more valuable, but I remain unconvinced.

The good news, if you like to speculate on these kinds of ideas, is that Matterport redeemed its warrants and raised a chunk of money while investors were still growth-happy in late 2021, so they’re pretty well funded for their growth needs over the next couple years. As of last quarter they had $487 million in cash and no real debt or obligations, so with the current and anticipated “burn rate” of about $100 million a year, they may have enough cash to get over the hump and build the business to some kind of sustainability. That’s good, because with the share price down at $2.50, about 90% from its highs, they do NOT want to be in a position where they have to raise money to keep the lights on. They may or may not make it, but it’s an interesting idea, and they have enough capital to keep building their product and trying to establish a sustainable user base. I don’t have a ton of confidence that they’re going to become self-sustaining in the next couple years, given how hard it has been for them to grow their user base during the last two years, but it’s at least possible.

And yes, a year ago “Wall Street” was predicting that Matterport’s revenue would triple by 2025, reaching $450 million, and the average price target from analysts was $27 (the stock had just fallen from $35 in November of 2021 to $12 in January 2022, so things were pretty wild back then). And they probably thought that was relatively conservative, since Matterport’s SPAC presentation had envisioned about $750 million in revenue by 2025. Today the average analyst price target is about $6.50, with the latest update I saw being $3 (down from $4.50) for Morgan Stanley. And we’ve all been reminded, over the past year, that pretty much every SPAC presentation was wildly optimistic (that’s the kind interpretation — some would say that SPAC projections, across the board, were more like fraud than optimism).

Analyst price targets are irrelevant, by the way, they have no predictive power — but they are an interesting measure of sentiment. Expectations are very low for Matterport, and that probably means it’s a better time to be speculating on growth… but it’s also a harder time, and it doesn’t look very likely that someone is going to bail you out by paying a goofy price in the near future, so only invest if you like the long term potential and are prepared to wait it out to see if they can deliver.

Next?

“Bonus Metaverse Stock #3: The Metaverse Runs on This Company’s Hardware
My last stock could also be one of the biggest winners in the metaverse…

“What it’s doing is similar to what Intel did with the internet…

“The company in my report invented the hardware that runs the metaverse.”

Here Snyder includes a photo of that hardware, which is a nice clue for us… and he goes on to make some huge claims…

“This single device can translate human speech…

“It can recognize objects in photos…

“And it’s a key player in the metaverse revolution.

“It’s got over 8,000 patents on its technology.”

And that, dear friends, is NVIDIA (NVDA), the image that Manward uses in the pitch is a photo of NVIDIA”s latest H100 Hopper GPU data center chipset. Here’s how they describe that product, which was introduced early in 2022 and just started shipping recently:

“The NVIDIA H100 Tensor Core GPU is our ninth-generation data center GPU designed to deliver an order-of-magnitude performance leap for large-scale AI and HPC over the prior-generation NVIDIA A100 Tensor Core GPU. H100 carries over the major design focus of A100 to improve strong scaling for AI and HPC workloads, with substantial improvements in architectural efficiency.”

NVIDIA is already on the leading edge of AI-processing hardware in data centers, with their high-end chips used both for accelerating AI tasks (like model training and inference), and just for accelerating processing in general. These are the chips that the government is trying to restrict from sale to China, but there has been plenty of demand globally from data center operators — and they’re pretty expensive, but should still sell in fairly high volume (each Hopper GPU costs something like $30-40,000). There is competition in this market, particularly from AMD and Intel, but NVIDIA started with a pretty good lead… and partly because they established a strong beachhead early on, with pretty much every AI project relying on NVIDIA software and hardware, I expect they’ll maintain a strong market share as the demand for data center AI processing continues to scale. Being the default software provider for a big business is often very sticky.

That’s my thematic thought on NVIDIA, and that’s why I’m pretty committed to holding my NVDA shares long term — though the business has grown very volatile in recent years, particularly with the rise and fall (and rise and fall again) of cryptocurrencies, many of which rely on high-end gaming GPUs like NVIDIA’s for mining, and there is some concern that the gaming business will be in a little bit of down cycle this year.

Here’s a little excerpt from my note to the Irregulars about NVIDIA after their last earnings update, in mid-November (the stock today is at about the same price it was then):

NVIDIA (NVDA) continues to see its business hold up a little better than expected, though there’s some worry about a decline in gaming revenue — whether that’s really a decline in gaming, or just the feed-through of a decline in demand from cryptocurrency projects (who have loaded up on gaming GPUs at retail in the past), I would hesitate to be certain. They have a better handle on their exposure to cryptocurrency projects now than they did a few years ago, when the collapse of Bitcoin and an inventory glut swamped the stock, partly because they’ve released some crypto-specific products, but some end-user demand is still a mystery.

The big growth area continues to be data centers, which use NVIDIA’s high-end acceleration engines for AI processing, and just to speed up processing in general. There’s competition in this space, from AMD and incoming from Intel, and there’s some pressure because they’ve been restricted from selling their most advanced chips to the Chinese cloud giants (Alibaba, Tencent, etc.), but they have also developed a China-specific product to comply with those sanctions, and so far it’s not having a meaningful impact on revenues.

In terms of the numbers for this quarterly update, it was “better than feared” but certainly not the typical “beat and raise” that investors in richly valued stocks usually hope to see. They “missed” on earnings (58 cents per share, much lower than the 70 cents expected), and their revenue fell from last year but was still above the analyst forecast. That was almost entirely due to a 50% drop in gaming sales, mostly because they pulled back on deliveries to let the inventory glut ease when demand dropped a bit (whether that’s crypto, or China, or just leery retail customers, we don’t really know). Their guidance for the fourth quarter was weak, too, but not dramatically so (they guided for $6 billion in revenue, the analyst forecast had been $6.14 billion). They’re in what is probably best described as a lull, they’ll probably have a little bit of growth from the third quarter into the fourth quarter, thanks to data center success and the growth of some of their smaller segments, like automotive, but it’s not going to be an instant snap-back to rapid growth.

The way analysts see it now, NVDA will end up with earnings that drop about 25% this year, once we’re done with the fourth quarter, and then will likely bounce back to 2022 levels (about $4.40 in earnings per share) next year and grow 15-20% a year again going forward… that’s not written in stone, of course, but even that relatively optimistic outlook means NVDA is valued at about 35X forward earnings, which is about the maximum you’d generally want to pay for a company that can reliably grow earnings at 15-20% a year. That means the attractiveness of NVIDIA going forward swings on whether or not you can put that word “reliably” into the sentence. I think you can, but it’s a judgement call, so I’ll hold off on thinking about adding at these levels — I bumped down my “max buy” price to $173, given the lower earnings estimates for next year, but will keep my lower “preferred buy” at $118, and we’re still way above that. I’m a long-term holder of NVDA, and think there’s still a strong future to be built on their leadership in AI, visualization, metaverse-y stuff and gaming, but I’ll hold out some hope that we see a much lower price on a bad day.

So there you have it, three more “metaverse” ideas — one tiny company in a speculative new niche, and two very well known and popular stocks that have fallen on hard times, but still have very good growth. Nothing cheap or easy in this bunch, but they are, at least, interesting companies with potential. Any of them light your fire? Still feeling burned from this year’s nasty downturn in these “growth” stocks? Let us know with a comment below.

Disclosure: Of the companies mentioned above, I own shares of and/or call options on Shopify, NVIDIA, Matterport, Amazon, and Google parent Alphabet. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.