- Activision (NASDAQ:ATVI)
- Take-Two (NASDAQ:TTWO)
- Electronic Arts (NASDAQ:EA)
- Nintendo (OTCMKTS:NTDOY)
- Zynga (NASDAQ:ZNGA)
To no one’s surprise, video game stocks are on fire right now. The novel coronavirus pandemic has forced everyone inside, and bored consumers starving for at-home entertainment are spending more time (and money) on video games. All of the best video game stocks I follow are up more than 5% year-to-date. The S&P 500, in contrast, is down 13% in 2020.
This early 2020 strength in video game stocks is more than a near-term phenomena. It’s the beginning of a multi-year run higher thanks to a rush of technological breakthroughs that will dramatically improve the industry’s growth prospects in the early 2020s.
Those breakthroughs include:
- 5G. Thanks to this new wave of wireless connectivity, video games — especially video game streaming services — will be faster than ever before, with almost no lag and significantly improved graphics.
- Artificial and virtual reality. Dramatic improvements in AR/VR technology, thanks mostly to 5G deployment, will enable every console and mobile game to include AR/VR capability of some sort.
- Cloud gaming. Also thanks to 5G, there will be huge breakthroughs in the ability for consumers to simply stream games from the cloud, without the need for hardware, or any installation, or any cables.
Together, over the next few years, these technological breakthroughs will: 1) increase the number of consumers interested in gaming, 2) increase the amount of time consumers spend gaming, and 3) increase how much revenue and profit video game companies earn from gamers.
All of that means that video game stocks can and will head higher over the next three to five years. As such, if you’re looking for stocks to buy for big gains in the early 2020s, consider the best video game stocks:
Best Video Game Stocks to Buy: Activision (ATVI)
At the top of this list of the best video game stocks to buy, we have one of the world’s largest video game publishers, Activision. There are three big reasons to buy ATVI stock for big gains in the early 2020s.
First, a new generation of gaming consoles set to launch this holiday season — the Xbox Series X and Playstation 5 — will spark a multi-year up-cycle in all things console video games. In the console video game world, Activision owns some of the most in-demand game franchises, like Call of Duty, meaning that the company is set to sell a ton of video games over the next few years.
Second, Activision — long known as one of the world’s most dominant PC and console video game publishers — is in the early innings of making a huge pivot towards mobile gaming. In October 2019, Activision launched Call of Duty: Mobile. It was a huge success. Activision intends to leverage that successful blueprint to bring its other gaming franchises to mobile, and better align itself with secular mobile gaming tailwinds.
Third, Activision has huge upside potential in the esports market. Behind Overwatch League and Call of Duty League, Activision is widely considered the esports market leader. As the esports market grows significantly over the next few years, Activision’s big esports leagues will grow, too, and the company will start to generate huge revenue streams from esports sponsorships and advertising.
Of all potential video game stocks to buy for big gains in the 2020s, my favorite is Take-Two.
This favoritism towards TTWO stock comes down to four things.
First, Take-Two has the best content portfolio in the entire video game world. The company owns Grand Theft Auto, the best-selling console video game of all time. The company also owns NBA 2K, one of the best-selling sports video game franchises of all time, and Civilization, the best-selling strategy video game franchise of all time. Red Dead Redemption and Borderlands, also Take-Two properties, are among some of the best-selling shooter games in recent memory.
Second, accompanying its best-in-breed content portfolio, Take-Two also has some of the best online gaming services in the market. There’s GTA Online, which is arguably the most popular online video game service in the world. There’s also Red Dead Online, which saw net bookings triple year-over-year last quarter. And there’s NBA 2K Online, which is the number one PC online sports game in China.
Third, Take-Two has some big upside catalysts on the horizon, including the potential explosive growth of the NBA 2K League over the next few years with the rise of esports, and the launch of GTA 6 in the early 2020s.
Fourth, all things considered, TTWO stock is attractively valued, with upside potential to $200 over the next few years, according to my numbers.
Electronic Arts (EA)
Another top notch video game stock to buy for big gains in the early 2020s is Electronic Arts.
There are three things to like about EA stock here and now.
First, much like Take-Two, Electronic Arts has a strong content portfolio of in-demand games with enduring appeal. Think FIFA, Madden, Star Wars, Battlefield, and Anthem. These are the sort of games which consumers won’t tire of anytime soon. They will sell very well over the next few years amid the video game market boom.
Second, among public video game companies, EA has the largest presence in the free-to-play, Battle Royale genre. Thanks to its hugely successful launch of Apex: Legends, EA has robust exposure to free-to-play gaming tailwinds. Many other video game stocks do not.
Third, the company has huge upside potential in esports. FIFA, Madden, and Battlefront are three of the most widely played “competitive” games in the world. As such, it’s easy to see a FIFA league, or a Madden League, or a Battlefront League, or all three, turning into something big over the next few years.
One of the best video game stocks to buy here and now is Nintendo.
The bull thesis on Nintendo stock boils down to three things.
First, Nintendo is going to sell a lot of Switch consoles and games over the next few quarters. Ever since it launched in 2017, the Nintendo Switch has been the hottest hardware in the video game world. Without contest. That remains true today. Switch sales in the U.S. hit a March record last month.
Over the next few quarters, consumers will remain cautious about ramping back up their social interactions. Consequently, demand for Switch consoles and games will remain robust. So will Nintendo’s sales and profit growth trajectories.
Second, the potential launch of a second Switch console — rumored to be dubbed the Switch 2 or Switch Pro — in 2021 gives Nintendo a strong upside catalyst next year. Ahead of that catalyst, it’s likely that investors will continue to bid up Nintendo stock.
Third, Nintendo stock is attractively valued for all of its upside potential. Activision, Take-Two, and EA all trade around 23-times forward earnings multiples, or higher. Nintendo stock trades at about 21-times forward earnings.
Last, but not least, on this list of video game stocks to buy for big gains is mobile video game publisher Zynga.
As has been the theme for this whole gallery, the bull thesis on Zynga stock boils down to three things.
First, mobile gaming will experience explosive growth in the early 2020s thanks to breakthrough 5G technology. That is, the widespread availability of 5G connectivity means that mobile games will be faster than ever before, without any lags, and with console-like graphics. This dramatic improvement in “playability” will spark huge mobile gaming engagement growth.
Second, Zynga is the king of mobile gaming. Think Words with Friends, Zynga Poker, Game of Thrones Slots Casino, and CSR. All of those franchises are owned by Zynga. Consequently, as the mobile video game market explodes higher in the early 2020s, so will Zynga’s revenues and profits.
Third, Zynga is just a $7 billion company. All of the other companies on this list have market caps of $13 billion or greater. If mobile gaming does explode higher over the next decade — and becomes an equally large market as console gaming — then there’s no reason that Zynga cannot march towards a $13 billion or greater market cap one day.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.