Last year was a great one for video game stocks. With most of the world under lockdown, gamers had more time to themselves than usual. And they spent a lot of that time playing video games, driving up the returns for related stocks.
Companies active in the space also did not rest on their haunches. With every passing day, new games are becoming more immersive, realistic and advanced. Online gaming communities have now become major social hubs for people to play together in an environment that feels like home, whether you’re looking at amateur tournaments or playing alongside your favorite pro player on a streaming service.
And this isn’t limited to desktop computers at home, either. There’s also been a huge boom within e-sports competitions that offer gamers major prizes.
The pandemic intensified this trend; Newzoo projects the market size will be $1.8 billion by 2022. As growth continues into next year and beyond, it will create a significant investment opportunity in video game stocks.
Considering the holidays are coming up, sales will continue to be strong. Consequently, now is the best time to recheck your portfolio and initiate or add to your position in these video game stocks:
- Nvidia (NASDAQ:NVDA)
- Electronic Arts (NASDAQ:EA)
- Activision Blizzard (NASDAQ:ATVI)
- Microsoft (NASDAQ:MSFT)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- Amazon (NASDAQ:AMZN)
- Take-Two Interactive (NASDAQ:TTWO)
Video Game Stocks: Nvidia (NVDA)
If you’re looking for a competitive edge in gaming, then it’s probably worth considering Nvidia. The company produces the high-end graphics cards needed to run video games at a high-performance quality. Many professional e-sports players prefer its chips since the company settles for nothing less than excellence.
Nvidia has provided cutting-edge technology that makes gaming more immersive than ever with its powerful graphics processing units (GPUs). This is why the company’s products have become one of the top choices among pro players who competitively play titles like League of Legends or Dota 2 on world stages.
In terms of fundamentals, Nvidia has always been a top performer. According to CNBC data, the chipmaker missed analyst expectations just once in the last 12 quarters.
It reported outstanding third-quarter earnings for the fiscal year 2022 after market close on Nov. 17, surpassing analyst expectations by a handy margin. Nvidia delivered adjusted earnings per share (EPS) year-over-year (YOY) growth of 60%.
Revenues jumped 50% YOY to a new quarterly record of $7.1 billion. The unexpected jump came from strong sales of graphics processing units that are used for video games and other types of digital media production, like animation or 3D modeling workflows.
Data center sales for Nvidia accelerated 55% in the last quarter and hit a quarterly record of $2.9 billion. Nvidia’s CFO, Colette Kress, attributed the growth to hyperscale customers like Amazon Web Services, Microsoft Azure and Google Cloud.
Electronic Arts (EA)
Electronic Arts hold licenses to several notable franchises, including Madden NFL, FIFA, NHL, NBA Live and Battlefield. Due to a large number of these franchises, EA has managed several years of double-digit revenue growth.
That will continue for the foreseeable future because game publishers have been betting big on virtual reality and next-generation consoles. The tailwinds from these technologies are likely to bring more success for all game developers, including EA. VR games should continue gaining mainstream traction, thanks in part to its ability to provide an immersive experience.
Electronic Arts reported its fiscal Q2 2022 results on Nov. 3. The California-based video game giant reported a GAAP net income of $294 million. This marks the second quarter in a row when the company has broken records with an earnings report that shines a light on successful new releases.
Revenues are also up considerably. Its Q2 sales figure of $1.8 billion compares very favorably with $1.2 billion a year ago. If you feel there is a slowdown, please remember we were in the middle of a pandemic last year. Hence, take year-over-year comparisons with a pinch of salt.
Andrew Wilson, the CEO of Electronic Arts, said, “This was the strongest second quarter in the history of Electronic Arts.” He added that the video game company will “deliver more amazing experiences this holiday season, and connect hundreds of millions of players around the world through our EA Sports games, Apex Legends, Battlefield 2042 and more.”
Hence, EA stock looks like a great one if you are looking to make excellent year-end returns.
Video Game Stocks: Activision Blizzard (ATVI)
Activision Blizzard owns popular titles like Call of Duty, Overwatch and World of Warcraft, which has helped it become one of America’s best-known brands in gaming today. However, the company has struggled in the last few months because of game delays and sexual harassment allegations.
Two hotly anticipated games from the Blizzard segment — Overwatch 2 and Diablo IV — are facing production delays. This can be partially attributed to key management personnel like Jen Oneal, co-leader of the Blizzard division, stepping down from their roles.
Meanwhile, calls are growing for longtime CEO of Activision, Bobby Kotick, to resign from his position. A Wall Street Journal report said the executive had knowledge about sexual misconduct allegations at the company, but failed to bring these claims to the board of directors.
As a result, the company’s employees have launched a petition urging the CEO to step down. How this will play out is anyone’s guess. However, it has done a number on the stock price despite stellar third-quarter numbers.
In a move to make Activision Blizzard more inclusive, Kotick outlined five steps the company would take to increase diversity and improve conditions. The plan includes implementing zero-tolerance harassment policies and a commitment to increase the participation of women and non-binary people in Activision’s workforce by 50%.
Revenues for the company were up 5.9% in Q3 over last year. Net bookings also grew by 6%, coming out at $1.88 billion. Looking ahead, the video game giant forecasts fourth-quarter adjusted sales to be $2.78 billion; consensus estimates are forecasting $2.85 billion. The sole major release this quarter was Diablo 2: Resurrected, but it was a winner for the company.
Activision Blizzard’s game catalogue and balance sheet are strong, but it has considerable work to do to make its promised improvements. If investors believe the company can turn things around, they may find value in ATVI stock at its current level.
Microsoft is one of the biggest tech companies in the world. It’s behind popular products like Microsoft Office, Surface tablet/laptop hybrids and even Bing search engine.
But some might not realize Microsoft has a powerful gaming business as well, which it channels through the Xbox One console. Most of the headlines are reserved for the bigger business segments. However, ignore the games division at your peril since it generates a lot of money for the conglomerate.
Last month, Microsoft posted an excellent first quarter for fiscal 2022, beating analyst expectations. Overall gaming revenue is up 16% for the quarter. Hardware revenue gained 166%, and the demand for Xbox Series X and Series S consoles is not slowing down anytime soon.
For this impressive growth, the credit has to go to the management for handling supply chain constraints. In the last few quarters, the semiconductor shortage has come back to haunt several industries. The tech sector is no exception.
It’s unclear whether the company will match demand with console supply into Q2, and Microsoft CFO Amy Hood has warned that supply constraints may last until 2022.
On the bright side, though, Microsoft will benefit from the Halo franchise boosting top-line growth with the holidays coming up. It is one of the most consistent performers of the company. Do not expect anything different this season.
Video Game Stocks: Alphabet (GOOG, GOOGL)
Google subsidiary YouTube has been one of its best-performing areas for revenue growth in recent years with its gaming content. The service has been a major player in gaming videos, with more than 100 billion watch time hours.
An increasing number of Twitch streamers now use YouTube as their go-to platform. Amazon backs Twitch, so it has a lot of cash to invest in improving operations and bringing back users who have left.
Meanwhile, Google parent company Alphabet posted a strong second-quarter recently. Revenue jumped 41% and earnings per share increased 68%, beating analyst estimates handsomely. Net income of $18.9 billion represents a jump of 68% over the year-ago period.
Although one of the most diversified companies on the planet, it has to give some credit to YouTube raking in the big bucks. The world’s largest video platform managed to produce $7 billion in ad sales, representing a YOY increase of 43%.
This exemplary quarter for YouTube brought it very close to fellow streaming giant Netflix (NASDAQ:NFLX), whose third-quarter revenue came in at $7.5 billion.
However, one blemish on its gaming business is Stadia, a Google-backed video game streaming service launched in 2019. Uptake is slow despite more than two years of operation. Moving forward, the company needs to keep investing in this area. If it manages to turn the corner, Alphabet will become one of the top video game stocks in the world.
Amazon’s Twitch is a popular video game streaming service that allows viewers to watch live content and chat with other players or streamers. YouTube can’t keep up with Amazon’s success in this sector of popular media consumption.
Data collected by Streamlabs and Storm Hatchet estimated that Twitch accounted for 72% of Q1 streaming hours. YouTube was second at 15%. Meta Platforms (NASDAQ:FB) came third with 12%.
Amazon’s Twitch has managed to dominate video game streaming. It may only be one percent of Amazon’s total revenue, but it will eventually become a significant contributor.
The bigger battle, however, is between Twitch and YouTube moving forward. Microsoft’s now-defunct platform Mixer never posed much of a challenge. You cannot say the same for YouTube, which is gargantuan in comparison.
It doesn’t help that streamers have low confidence in Twitch at the moment. It is all because of the prevalence of “hate raids” on the platform. For those who are unfamiliar, hate raids are when harassers use bots and dummy accounts to attack someone from marginalized communities. The Twitch-wide epidemic led to a walkout called #ADayOffTwitch, where streamers did not use the platform for a day in protest.
The company can do without this negative publicity. Nevertheless, Twitch is one of the most profitable streaming services with over $500 million projected annual revenues.
Video Game Stocks: Take-Two Interactive Software (TTWO)
Take-Two Interactive Software owns two important publishing labels, Rockstar Games and 2K, with in-house development teams. You will recognize several notable titles in its portfolio, including Grand Theft Auto, Red Dead Redemption and Borderlands.
For its second fiscal quarter ended Sept. 30, revenue rose to $858.2 million from $841.1 million in the year-ago quarter. Meanwhile, net bookings jumped to $984.9 million from $957.5 million. The game publisher’s revenue set up its seventh consecutive earnings beat, per CNBC data.
The company attributed the sales growth to NBA 2K22 and NBA 2K21. Major releases including Grand Theft Auto Online, Red Dead Redemption 2 and Borderlands 3 were also well-received by users and contributed positively to sales.
Grand Theft Auto 5 is one of the most successful games in history, with more than 155 million copies sold since its release. The game had generated an incredible $6 billion in revenue by April 2018.
A recent earnings report revealed two immersive core titles would be delayed by a few months. For investors, it is a key area to watch moving forward.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.