Electronic Arts (NASDAQ:EA) is having a decent year on the markets with EA stock up 19.44% year-to-date, including dividends, through Oct. 3. That’s 257 basis points higher than the SPDR S&P 500 ETF (NYSEARCA:SPY) and 645 basis points higher than rival Activision Blizzard (NASDAQ:ATVI).
While EA stock is up YTD on ATVI, the question is whether it can maintain this momentum all the way to $175 — 87% higher than the current price of Electronic Arts.
Or, will ATVI jump 87% before EA does and hit $100?
Why I’m asking These Questions?
Over the past couple of years, I’ve followed the stock performance of Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA).
For fun, I suggested in 2017, that Nvidia would hit $200 before AMD hit $25. It did, so I upped the ante, suggesting it would hit $350 before AMD hit $25. It didn’t. AMD hit $25 in August 2018, while Nvidia struggled to get to $300.
“[I’m] confident that Nvidia’s profitability would win the day,” I stated in September 2018. “I upped the ante predicting NVDA stock would hit $500 by the end of 2020, before AMD would hit $45.”
How am I doing?
Advanced Micro Devices stock is up 11% since September 4, 2018, the date of my price prediction, while Nvidia is down 37% over the same 13 months.
Lisa Su has done an excellent job at AMD over the past five years. It’s a big reason why AMD has been the better performer and could remain so in the future.
So, now that you know the “why” behind the headline of this article, let’s dig into the heart of the matter: Which stock will rise 87% first?
EA Stock Will Hit $175 By What Date?
Interestingly, both stocks have similar performance over the past five — and 10-year periods — EA’s average total return over five and ten years is 19.7%, 80 basis points higher than ATVI — which means it isn’t going to be easy picking a winner.
One of the things that EA has going for it, as my InvestorPlace colleague Josh Enomoto recently alluded to, is that it has finally figured out how to extract real value from the Star Wars franchise, which should generate significant cash flow for the company for years to come.
How so?
In response to poor showings with “Star Wars: Battlefront” and “Star Wars: Battlefront II,” which failed to wow gamers, it released “Star Wars: Fallen Order,” which appears to be a product that both gamers and sci-fi lovers appreciate and can enjoy playing.
Factor in the fact that the next installment of Star Wars hits theaters Dec. 20, which should ramp up excitement for the game itself, generating significant revenues for Electronic Arts, and further gains for shareholders.
When does EA stock get to $175?
Well, it has never been higher than $151.26 (July 2018), so it’s likely going to take at least 18-24 months in my estimation; possibly longer if a recession hits.
ATVI Will Hit $100 Sooner or Later?
ATVI stock hit an all-time high of $84.68 in October 2018. Since then it has lost 36% of its value.
That’s the bad news.
The good news is that it’s making big inroads in the esports market with its Overwatch League, whose sponsors include Intel (NASDAQ:INTC) and Coca-Cola (NYSE:KO). And team-based esports have become so big that the Philadelphia Fusion Overwatch team is building an esports arena — it will cost $50 million to build, will seat 3,500 people and will even have a practice facility — in between the stadiums where the NHL’s Flyers and NFL’s Eagles play.
God help us if the practice facility includes a weight room. But I digress.
Audiences are getting bigger by the day with growth happening in many markets, not just in the U.S.
“According to Esports Strategy and Analytics Lead at Activision Blizzard Kasra Jafroodi, the average minute audience (estimated audience divided by total time broadcast) for Overwatch League matches was 218,000 internationally as opposed to 95,000 in the U.S.,” the Washington Post’s Hawken Miller reported in late September.
Some very rich people are backing the Overwatch League’s 20 teams, including Kraft’s, Kroenke’s, Wilpons and Roberts’.
Big money doesn’t jump into something like this without a potential pot of gold at the end of the rainbow.
Recently, I suggested that the company was doing enough to be a $60 stock in the near term, say by the end of the year. To get another $40 to $100, it’s going to need a few wins beyond the Overwatch League and its mobile version of Call of Duty.
The Verdict
I didn’t expect AMD to put such a beatdown on Nvidia. Yet, it happened. And then some.
From where I sit, EA and ATVI both have strengths and weaknesses, with neither standing out from the other. I expect both of them to continue to deliver similar returns over the long haul. As a result, it’s possible both could hit their price targets at the same time in 18-24 months.
If you’re unsure about which stock to buy, you might consider The Communication Services Select Sector SPDR Fund (NYSEARCA:XLC), which has EA and ATVI at weightings of 3.7% and 4.5%, respectively.
At the time of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
