Back in the day, “gamers” used to be a special group of kids. They were the ones that bullies dumped into the trash bin during middle school lunch break. (Trust me, I know from personal experience). Thankfully, for those seeking the best gaming stocks to buy, the hobby is now generally accepted — and even loved — worldwide. Over the years, this rising popularity has helped put countless gaming stocks in the spotlight. However, the industry has since matured. Now more than ever, not all stock picks here are worth your money moving forward.
Before we take a closer look, however, it’s important to recognize a few things about the modern gaming industry. Specifically, there are still some unique swaths of gamers in the mix today. Each of these groups play a key role in the industry’s success.
Oversimplified labels for the general gamer types are “hardcore” and “casual” gamers. Some play for hours on end. Meanwhile, others simply hop on their phone while laying on the couch, gaming for a mere 15-minute distraction. The types of games that appeal to each of these groups often vary. However, many breakout games manage to bridge the gap between hardcore and casual appeal. Regardless of what group you fit into, though, one absolute certainty remains: video games make a lot of money.
In fact, the popularity of gaming is now greater than North American sports and worldwide cinema combined. Of course, the pandemic was a helpful catalyst. After all, as a socially distanced hobby, gaming was a no-brainer solution to connecting with others and staying entertained through quarantine.
The pandemic accelerated this industry’s growth in ways analysts could have never anticipated. Yet, despite this boost, there’s still room left to expand. According to Grand View Research, the video game market is “expected to grow at a Compound Annual Growth Rate (CAGR) of 12.9% from 2020 to 2027.”
That said, with people now socializing in person thanks to the vaccine rollout, it has also become even more necessary to pay close attention when picking these stocks. There will inevitably only be a few winners and plenty of losers when it comes to gaming stocks in the new normal. (Let’s just hope for the losers’ sake that they don’t get thrown into the trash bin).
So, without further ado, here are three gaming stocks that should stand out in the years ahead — with or without the pandemic catalyst to help.
Gaming Stocks to Buy: Microsoft (MSFT)
At this point, Microsoft is no stranger to video games. While it has always played a role in PC gaming with its Windows platform, it really started to amp things up back in 2001 with the debut of its Xbox console.
It wasn’t an easy ride, contending with long-time gaming champions Sony (NYSE:SONY) and Nintendo (OTCMKTS:NTDOY). But Microsoft ultimately led the way with a major console gaming innovation through its Xbox Live online platform.
Twenty years later, its latest console — the Xbox Series X — has proven to be among the strongest of the bunch. In the old days, hardware sales used to be a key bragging point for console developers. But, similar to what it did with Xbox Live, Microsoft is shifting the status quo again. This time, it’s innovating through Xbox Game Pass, which enables “a kind of entertainment ‘metaverse.'” An oversimplified way of looking at this is as a sort of Netflix (NASDAQ:NFLX) for games.
Regardless of how you define it, Game Pass now has more than 18 million subscribers. That likely makes it a large contributor to the 50% year-over-year (YOY) boost to gaming revenue as well as the 34% increase in service revenue MSFT recently enjoyed.
Another big reason MSFT stock belongs on this list of gaming stocks to buy, though, is that it bought ZeniMax Media last year. Most notably, the $7.5 billion deal gave it access to Bethesda Game Studios. That’s the studio behind mega hits like the Elder Scrolls, Fallout and Doom franchises. (Bethesda tapped into these through some of its own prior acquisitions). It took a while for this purchase to start bearing its true potential, but at the 2021 E3 expo, Bethesda revealed console exclusivity to Microsoft’s new Xbox for its upcoming Starfield game.
Combine the Xbox Series X’s promising future — loaded with exclusive triple-A titles from a ridiculously popular gaming studio and other successes like Game Pass — and it’s no wonder why Microsoft’s future looks bright. Plus, add in the fact that MSFT stock is much more than just a gaming stock and there’s plenty of reason to place it high on your list of gaming stocks to buy.
Activision Blizzard (ATVI)
As a former “hardcore” gamer, putting Activision on this list pains me a little. After all, the breakout success of Call of Duty 4: Modern Warfare all the way back in 2007 essentially redefined the design of mainstream first-person shooters for years to come.
Thanks to the popularity and subsequent influence of this game, multiplayer no longer relied on significant fast-twitch skill to drive the action. Instead, after Call of Duty 4, many shooters implemented more addictive leveling systems for progression with various skills, items and abilities to enhance the mayhem. It also helped popularize extreme yet short Hollywood-like action narratives for single-player experiences in the first-person shooter (FPS) genre.
Toss in a few other long-standing influences and tweaks to the old-school formula I loved and you’ve got an idea for why I’m not a fan of the series. Basically, it helped “causualize” modern games. But, personal tastes aside, the Call of Duty franchise exploded after Modern Warfare. In fact, the franchise has sold over 400 million units since the original game debuted in 2003.
Worldwide success like this is a large part of why video-game nerds like me no longer get the trash-bin treatment. Instead, they’re actually considered “cool” these days. It’s also one of the main reasons you should have ATVI stock on your list of gaming stocks to buy for the long term.
Moving forward, there’s plenty to like about Activision Blizzard. And it’s not just about the inevitable mega-ton success that’ll come with the next Call of Duty game. For example, ATVI is strengthening its efforts in mobile-game development. While it will always have a place in hardcore gaming circles, this expansion will help it tap into “the $77 billion mobile gaming market.”
Before we move on, let’s not forget the “Blizzard” part of its name, either. That’s actually the part I adore the most from a pure gamer’s perspective.
You can thank widely successful franchises like Warcraft, Starcraft and Diablo for that affection. They’re part of what makes ATVI ridiculously important from an investment perspective, too. This year, Blizzard will release Diablo II: Resurrected — a visually updated version of its long-standing year-2000 classic. The next game in the franchise, Diablo IV, is also on the horizon. And Overwatch 2 — the sequel to Blizzard’s best-selling game at 50 million units — is also in development.
Love it or hate it, Activision Blizzard is an undeniable powerhouse among gaming stocks.
Gaming Stocks to Buy: Zynga (ZNGA)
I’m admittedly entering alien (possibly enemy?) territory here with this next pick. After all, Zynga is a video game company that specializes in casual gaming experiences.
But if you’re looking for solid gaming stocks to buy, that’s far from a bad thing. Being a hybrid of the hardcore and casual gamer types, I understand the appeal. Many people, myself included, usually don’t have the time or patience to allocate hours upon hours to multiple gaming sessions a week. Yet, after a hard day’s work, we’re all still looking for a fun distraction, right?
That’s where the case for Zynga comes in. As a producer of mobile games and social-media entertainment, ZNGA is at the other end of the gamer-type spectrum. But even if you think the games are a bit of a joke, the potential audience for them is nothing to sneeze at. In fact, mobile games — Zynga’s specialty — “accounted for 58% of the total games market” in 2020.
That’s not to say there isn’t room for the hardcore games I love. However, focusing on a video game company that specializes in mobile experiences makes a whole lot of sense from an investment perspective. And that’s even more true when you break down the bullish case for ZNGA stock a bit further.
Consider, for example, the company’s impressive 68% YOY revenue growth reported for Q1 this year. Its advertising revenue also rose 108% YOY (making for 18% of total revenue). Sure, this reflects the increasing value of its advertising business, but a recent move to acquire advertising platform Chartboost demonstrates the company’s long-term commitment to strengthening this segment in the years ahead.
Put it all together and there’s plenty of reason for hype here. The company continually reaps rewards from existing successes like the super-popular FarmVille franchise. It’s strengthening the effectiveness of its advertising business (with quantifiable success so far). It also has several promising new games in the pipeline. And, it’s moving to expand the overall breadth of its audience through live events and cross-platform opportunities. Zynga expects 32% overall revenue growth this year as a result, alongside double-digit growth in 2022.
Oh and remember — it’s doing all of this as one of the leaders in the largest facet of the total games market: mobile.
Robert Waldo is a web editor for InvestorPlace.com. On the date of publication, he did not hold a position (either directly or indirectly) in any security mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.