Image Source: Qualcomm Inc – November 2021 Investor Day Presentation
By Callum Turcan
A lot of attention has been directed towards the idea of a metaverse, which in short is an expansive digital universe where users can interact with one another via digital avatars of themselves (or whatever avatar the user prefers). This universe could, in theory, combine the functionality of computers and smartphones with almost every digital platform and application in existence.
Users could perform both productivity-related activities (collaborating on work projects, holding team meetings, working with clients) and leisure-related activities (playing games with friends and family, meeting up with distant relatives, watching concerts, other live events, TV shows, and movies) in a seamless fashion. The user would not need to jump from digital platform to platform to access different applications.
What the metaverse actually ends up looking like, assuming this concept materializes into something more tangible, remains to be seen. However, what is abundantly clear today is that tech companies are investing heavily to make this vision a reality.
Update on the Metaverse
For Qualcomm Inc (QCOM), this includes teaming up with Microsoft Corporation (MSFT) to help the software giant develop new semiconductor components and the related software (built on Qualcomm’s Snapdragon platforms) to power Microsoft’s future augmented reality (‘AR’) hardware. This partnership was announced at the recent Consumer Electronics Show (‘CES’) 2022 event in Las Vegas, Nevada. Qualcomm and Microsoft are already working together in this space, as Qualcomm’s Snapdragon 850 Mobile Compute Platform is used to power Microsoft’s HoloLens 2 AR headset through an agreement announced in February 2019 (the HoloLens 2 AR headset was made publicly available later that same year).
Tech companies are focused on developing headsets that completely cover the eyes to fully immerse the user in the digital universe and enable AR and virtual reality (‘VR’) functions. For instance, these headsets are designed to follow the motions of the user’s hands to allow the user to interact with the applications made available in the digital universe (audio functions are designed to mimic the relative location of different users in the digital universe to further enhance the experience). Qualcomm’s XR2 Platform is used to power the Oculus Quest 2 VR headset, which was the creation of Meta Platforms Inc (FB), the company formally known as Facebook (then-Facebook acquired Oculus in 2014 through a ~$2 billion cash-and-stock deal). Qualcomm is ensuring that its “chips” and related software will play a leading role in the eventual rollout of metaverse offerings from major US tech giants, and we appreciate its efforts to establish a meaningful presence in this space early on.
Pivoting back to the recently announced Qualcomm-Microsoft partnership, the duo envisions using Qualcomm’s Snapdragon Spaces XR Developer Platform, which was announced in November 2021 and should become widely available by the spring of 2022. According to the press release, this platform is a “developer kit to enable the creation of immersive experiences that seamlessly blur the lines between our physical and digital realities” for AR headsets that can power “an open, cross-device horizontal platform and ecosystem.” Qualcomm’s new Snapdragon Spaces platform highlights how the company continues to innovate and to meet the ever-evolving needs of major tech titans.
Microsoft intends to bring its Microsoft Mesh platform to the table which is a “mixed-reality platform powered by Azure [Microsoft’s cloud computing division] that allows people in different physical locations to join collaborative and shared holographic experiences on many kinds of devices.” Snapdragon Spaces will become fully integrated with Microsoft Mesh according to recent management commentary provided during the CES 2022 event and should help improve the ability to bring together users accessing the digital world via different devices (such as headsets and laptops).
Before the metaverse, as envisioned, can be rolled out to the public, the tech industry first needs to perfect the AR/VR headset side of the equation and then needs to ensure that those using different devices can all seamlessly interact in the metaverse together without complications. Qualcomm and Microsoft are working together to make that possible.
Concluding Thoughts
As it concerns Qualcomm, we appreciate the company’s forward-thinking strategy as it relates to identifying new market opportunities to capitalize on. Qualcomm does a tremendous amount of business with Apple Inc (AAPL), though as Apple pivots towards designing and supplying its own chips for its iPhones and other hardware, Qualcomm needs to adapt.
Pushing into the metaverse is an example of that pivot. Back in November 2021, Qualcomm announced it intends to grow its addressable market opportunity by $100 billion to $700 billion by 2030, and its recent partnership with Microsoft highlights how Qualcomm is putting that plan into action. We covered Qualcomm’s extensive growth runway, strategic ambitions, resilient business model, and promising growth outlook in a November 2021 article that is still relevant as of January 2022, and we encourage members to check out that article (link here). Shares of Qualcomm are included as an idea in the Dividend Growth Newsletter portfolio.
For Microsoft, the firm is showing that it is serious about its AR/VR and metaverse ambitions and that it will not take a back seat to other tech giants that are also pushing deeper into this space, such as Meta Platforms. We like Microsoft as an idea in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios, and we covered our thoughts on Microsoft’s stellar financial position in a October 2021 article that can be viewed here.
On a final note, we are huge fans of Meta Platforms, formerly Facebook, and include the stock as an idea in the Best Ideas Newsletter portfolio. We are also big fans of Apple and include that tech giant as an idea in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios.
As 2022 gets underway, we remain bullish on large-cap tech companies as the secular growth tailwinds this space is capitalizing on should help offset pressures that may arise from a rising interest rate environment. This space is full of net cash-rich, free cash flow generating powerhouses with great growth outlooks.
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Callum Turcan does not own shares in any of the securities mentioned above. Apple Inc (AAPL), Cisco Systems Inc (CSCO) and Microsoft Corporation (MSFT) are all included in both Valuentum’s simulated Best Ideas Newsletter portfolio and simulated Dividend Growth Newsletter portfolio. Alphabet Inc (GOOG) Class C shares, Meta Platforms Inc (FB), Korn Ferry (KFY), PayPal Holdings Inc (PYPL) and Visa Inc (V) are all included in Valuentum’s simulated Best Ideas Newsletter portfolio. Oracle Corporation (ORCL) and Qualcomm Inc (QCOM) are both included in Valuentum’s simulated Dividend Growth Newsletter portfolio. Meta Platforms, Oracle Corporation, and Taiwan Semiconductor Manufacturing Company Limited (TSM) are all included in Valuentum’s simulated ESG Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.