The video game industry is booming as nostalgia and active entertainment join forces. The industry is projected to maintain a compounded annual growth rate of 13.4% from now until 2030.
Smartphones have created new avenues for game makers. While consoles and paid games still have a large portion of the market, mobile games are free and offer a lower barrier to entry.
However, video game companies still make money from these apps through in-game transactions and advertisements. Paid downloadable content and subscription plans give companies additional ways to profit from this industry.
There’s also a large segment of consumers who don’t play video games but prefer to watch people on streaming sites like Twitch and YouTube, owned by Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Some creators make more than $1 million per year by streaming video games, and you better believe that the companies are making a lot more.
Some gaming stocks have been leveling up portfolios for several years while outperforming the S&P 500. Gaming stocks can also navigate recessions better than most stocks, as gaming presents a way for people to temporarily escape their financial hardships and other obstacles.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is a dominant force in multiple industries. Cloud revenue is the biggest component and makes up more than half of the company’s total revenue.
However, it also has a large market share of the gaming industry thanks to Xbox. That part of Microsoft’s business grew by 62% YOY in the third quarter of fiscal 2024, largely due to the recent acquisition of Activision Blizzard.
Overall revenue jumped by 17% YOY while net income was up by 20% YOY.
The tech giant has a good history of market outperformance. Shares are up by 8% year-to-date and have almost doubled over the past five years. The stock offers a 0.73% yield and has maintained a double-digit dividend growth rate for several years.
Many Wall Street analysts believe that the stock can rally from current levels. The average price target implies that Microsoft can gain an additional 19%. The tech conglomerate is rated as a “Strong Buy” among analysts as well.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is in a similar position to Microsoft. It’s winning in numerous industries, with e-commerce, cloud computing and advertising as some of the highlights.
Some people turn to Amazon’s online marketplace to buy video game consoles and devices, but that’s not the reason why Amazon is on this list.
The tech conglomerate owns many companies, such as Whole Foods, Audible and Zappos. However, Amazon also notably owns Twitch, one of the top streaming platforms for video game enthusiasts.
The average Twitch user watches video game livestreams for 95 minutes per day. Amazon generates revenue as viewers watch advertisements and donate to their favorite creators.
Keeping people in the Amazon ecosystem can also drive up more sales for Amazon’s online marketplace and Prime memberships.
Amazon is one of the top holdings in the S&P 500 and the Nasdaq Composite. Most investors are happy about that news, since Amazon stock is up by 8% year-to-date.
Nintendo (NTDOY)
Nintendo (OTCMKTS:NTDOY) has produced many iconic video game series and has an engaged core audience. The company boasts high profit margins that exceed 30% in some quarters.
The stock has delivered a 9% return over the past year for investors and is up by 27% over the past five years.
The video game giant’s revenue increased by 4.4% YOY in fiscal 2024. Nintendo also achieved a 20.1% return on equity during the year.
However, the stock is likely to drum up significant growth in the next 1-2 years. That’s because Nintendo is going to announce a successor to its wildly popular Nintendo Switch.
The company’s Nintendo Switch 2 should be announced before March 31, 2025. There hasn’t been much public information about the new device, but it should generate a surge in sales. A new console and new titles should bolster demand for the company’s games.
Nintendo also has a great opportunity with movies. There is a big void in the box office, and Nintendo is one of the few companies that can fill it. The success of the Super Mario Bros Movie is a testament to how much of an impact movies can have on Nintendo’s bottom line.
On this date of publication, Marc Guberti held long positions in MSFT and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
