In the midst of the current economic crisis, following a pandemic, soaring interest rates, a market crash of both stock and crypto sectors, and the collapse of Silicon Valley Bank (among others), the world of investing is facing an entirely new set of challenges that can be seen as a catalyst for a Great Reset. Venture capital firms are in turmoil and we seem to be facing a financial meltdown that could be worse than in 2008. Amid the chaos, however, always lie opportunities for investors to capitalize on the future. Some of these include the convergence of three groundbreaking technologies: AI, Web3 and the metaverse.
At a time when no advancements happen in a vacuum, the combined power of these three components will enable unprecedented business opportunities, impressive societal advancements and life-altering changes to how humans interact with the digital world. It's not only startups and businesses that exist in the tech space that will change with these tools and platforms; virtually every single industry and business will see a massive overhaul in growth and potential if they effectively utilize them.
According to Fortune Business Insights, the market size of artificial intelligence (AI) is expected to grow from $387.45 billion in 2022 to $1,394.30 billion in 2029 in North America alone. The massive rate of growth surrounding new technological advancements doesn't stop with AI; McKinsey estimates that the metaverse will create $5 trillion in value by 2030, and the consulting firm Grand View Research predicts that the global Web3 blockchain market will grow at a rate of 47.1% between 2023 and 2030.
For investors, this all boils down to one thing: opportunity. The only question is, are they truly prepared to jump into this space, make the right decisions, and take advantage of this new technical landscape?
For nontechnical folks, it's not uncommon to grapple with understanding the intricate connections of AI, Web3 and the metaverse together. While these three are deeply intertwined, it's important to understand each of them separately to make sense of how they end up converging.
Artificial intelligence, or AI, can automate processes, drive data-driven reporting and revolutionize how businesses interact with their clients. AI models can be taught, retrained and refined to inform decisions or help customers through common challenges. AI can generate content tailored to specific audiences and enhance user experiences by delivering personalized information (an indispensable feature for the metaverse). And that's just the tip of the iceberg.
Web3, which you might hear or see as Web 3.0, is the overhaul of the entire connected online world. Web 1.0 was the first internet platform that was static and information based. Web2 and Web 2.0 introduced dynamic, user-generated content and social media. Web 3.0 boosts the decentralization of networks and online spaces, enables the tokenization of real assets and makes it possible for users to take security and privacy to new levels. The Web3 promise has helped take the common use of digital currencies and blockchain technology to where it is today.
The metaverse, which Meta, primarily known as Facebook, spent a staggering $10 billion on in 2021, is a virtual, persistent world that exists online and can take different forms, merging our current in-person reality with a digital one (think digital twin). Despite the initial hype around it diminishing, the recent growth in Meta and Nvidia stocks (up 70% and 91% YTD) may demonstrate otherwise in the long haul. The metaverse's expensive hardware could improve dramatically as companies like Apple are expected to shake up the AR/VR headset market. As competition increases along with innovation, prices could drop and accessibility improve, driving adoption.
It has the so-called power to change how we interact socially, consume, work, and play video games, but also how we think about our own digital existence. In his book The Metaverse Revolution, author Philippe Rodriguez, co-founder of the Metaverse Think Tank Metacircle, emphasizes the growing hybridization and continuity between the real and virtual worlds: "As talented individuals from the digital community continue to emerge, the lines between the two worlds blur even further. For example, a freelance designer could create a successful virtual sneaker for Nike, which could eventually lead to its production in the real world." It might sound far-fetched at first, but the metaverse's role as a digital distribution platform and testing ground for brands has already shown impressive results.
On their own, each of these verticals is revolutionary, but together, they're getting ready to shape the future of humanity. With digital financial transactions becoming commonplace, tangible assets like real estate digitalized through asset tokenization, and a new sense of community and connection that lives online, the convergence of AI, Web3 and the metaverse offer endless opportunities to individuals and investors.
According to McKinsey's analysis of the metaverse, Venture Capital and Private Equity firms have invested $6 billion to $8 billion in the metaverse in the last two years. A solid chunk of money, yes, but that amount is only expected to increase exponentially as firms decide whether they want to play in this field or not. For most, the answer is going to be a resounding yes, but some still aren't sold on the future of these technologies.
Investing in AI, Web3 and the metaverse is about so much more than those technologies alone; it's about the impact they will have in every business sector. Healthcare companies that adopt AI can better serve their customers and improve medical diagnostics; in the retail industry, businesses can develop captivating, virtual shopping environments in the metaverse and allow customers to interact with products in realistic settings. This can also lead to more collaborative and tailored learning opportunities for students across the globe. There are probably ways that these technologies will change the world that even the experts haven't predicted yet.
As traditional investment models falter, a new paradigm emerges. Forward-thinking investors who recognize this shift and adapt accordingly will find themselves at the forefront of what will reshape industries across the board.
Institution leaders need to assess the readiness of their organization for these technologies and prioritize areas where AI, Web3 and the metaverse can truly create value. Smaller investment firms should aim for diversification due to limited capital and spread their investments across various sectors and applications within the AI, Web3 and metaverse ecosystems to mitigate risk.
For these reasons alone, VC and PE institutions need to develop new investment and portfolio management strategies. The factors that once signaled sure-fire return opportunities is now obsolete.
Just like the dot-com boom and bust that came before its global prominence, AI and other digital technologies could see volatility in the coming years. The excitement could inflate quickly, creating a bubble that will likely end up bursting before recovering and gaining even more ground.
But overall, the opportunities will grow, and so will the returns.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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