A team of JPMorgan analysts wrote on Sunday that Tencent, NetEase, and Bilibili are their three top metaverse picks in China.
Among non-internet names in Asia, stocks like Sony, China Mobile, and Agora also made the list as well as potential winners.
Their reasoning? JPMorgan says each company has a competitive edge in a specific aspect of the metaverse, whether that be game developers or social media networks.
“Development of mobile internet and AI in the past 5-10 years suggests that a company’s competitive advantage in one part of the tech ecosystem is often more important in determining long-term value creation to shareholders than which part of the ecosystem the company operates in,” wrote Chen in his report.
Just How Big is China’s Metaverse Opportunity?
The answer is massive.
JPMorgan identified two major investment opportunities within China’s broader metaverse market. The first being gaming. In JPMorgan’s most bullish scenario, China’s gaming market could triple from $44 billion to over $131 billion.
Those figures have already eclipsed the American gaming market, which reached $30.4 billion in 2021, according to Research and Markets.
Companies like Tencent and NetEase have been steadily growing internationally, with the two investing heavily in Western game developers like Ubisoft.
This One Niche Could Be Worth $4 Trillion
The other main metaverse opportunity is what JPMorgan referred to as the digitalization of business and consumption. In other words, as the metaverse takes off, people are going to be spending much more time doing things online that they otherwise would have done in person. In turn, companies can expect to generate more revenue per internet user as people stay plugged in for longer.
JPMorgan predicts software and services in the metaverse could be worth over $27 billion. However, digitalizing offline consumption of goods and services could grow into a gigantic $4 trillion market in China.
That’s the good news. The bad news, however, is that all this will take time, as metaverse technologies will take a while before they are ready for mass adoption. This includes the current generation of VR devices, like the Oculus Rift, which are too heavy to be used for long periods.
Besides VR technology, the technological infrastructure needed to host widescale metaverse services still needs to be developed as well, not to mention metaverse related content.
“We think ‘perfect form’ of the metaverse could take decades to achieve,” JPMorgan said. “While we believe the [total addressable market] for the metaverse is enormous, we believe there are various technological obstacles to overcome.”
How Have Regulators Responded?
While Chinese tech giants are eying future metaverse opportunities, the government of China is less keen on encouraging said projects.
Back in February, the China Banking and Insurance Regulatory Commission issued a warning against illegal fundraising schemes involving the metaverse, warning that scammers have jumped on the metaverse bandwagon as the next way to sucker gullible investors.
It’s not surprising, as Chinese regulators have erred on the side of caution in the past when it comes to new tech trends. Their response to the cryptocurrency industry is just one such example.
While skeptical regulators might slow down metaverse adoption in China, it’s likely won’t be what makes or breaks the industry’s future.