Your parents may have told you that video games will rot your brain, but they probably didn’t understand how big a boost they could give to your portfolio. Video games have gone mainstream thanks to industries like eSports and non-fungible token (NFT) marketplaces. Professional Call of Duty and League of Legends players rake in millions of dollars from streaming platforms and competitive gaming tournaments. ESPN covers eSports, and it won’t be long until you can bet on these matchups like they were the NFL playoffs. Not surprisingly the best gaming stocks are a great addition to your investment portfolio.
Gaming stocks made headlines last year because of the GameStop Corp. (NYSE: GME) short squeeze, but that market movement was influenced more by market psychology than improvement in GameStop’s bottom line. Here are Benzinga’s top five picks in the gaming sector for 2022.
Quick Look at the Best Gaming Stocks:
- Roblox Corp
- Scientific Games Corp
- NVIDA Corp
- Electronic Arts
- Take-Two Interactive Software, Inc.
- Sony Group
Gaming Stocks to Watch Out for This Year
Consolidation has been a theme in sectors like gaming for a while now whether it’s small studios being absorbed by larger companies or two major studios merging. Microsoft Corp.’s (NASDAQ: MSFT) purchase of Activision Blizzard recently stole headlines, and Take Two Interactive’s purchase of Zynga Inc. (NASDAQ: ZNGA) was of note, but this trend has been going on for decades, such as SquareSoft merging with Enix and buying Eidos Interactive. Many of the companies on this list are conglomerations of multiple outfits, but a few stand on their own as new entrants in a rapidly evolving industry.
Roblox Corp. (NYSE: RBLX)
One of the newer entrants in the space is Roblox, the online gaming platform that allows users to play and create their own games on the system’s network. Through Roblox Studios, users can build their own gaming universes and offer them to other players on the network. The Roblox network is free to access and play, but additional items can be purchased with the in-game currency Robux.
Roblox went public in 2020 and immediately became a winner. The stock has struggled in the last few months, as most tech stocks have, but the user base and network should give the company an advantage for years to come. Roblox is down more than 50% from its 2021 high and could be a bargain at these levels.
Scientific Games Corp. (NASDAQ: SGMS)
Scientific Games Corp. is a Las Vegas-based company that provides gaming services to live venues and mobile phones. The first segment sells gaming machines, lottery terminals and table-game equipment to casinos and bars. It also develops online mobile software for users to place live bets on slots, cards and bingo games.
SGMS is the smallest company on this list with only a $6 billion market cap, but its stock has held up well compared to the rest of the sector over the last 12 months, and it can appeal to a broader market than traditional gaming companies.
NVIDIA Corp. (NASDAQ: NVDA)
NVIDIA doesn’t develop actual video games or gaming consoles, but the industry would be in a tight spot without its products. NVIDIA’s GeForce NOW and GeForce GPU are crucial parts for gaming consoles, PCs, gaming networks and streaming services. Without these processors, gamers worldwide would see their computers and consoles turn into expensive paperweights.
NVIDIA is a massive force in the tech sector with a market cap over $600 billion. Its processors are more in-demand than ever, and the increasing complexity of these systems creates a lucrative moat for the company. NVIDIA also has ventures exploring self-driving cars, cloud computing and artificial intelligence.
Electronic Arts (NASDAQ: EA)
Electronic Arts develops and publishes games for consoles, PCs, tablets and mobile phones, but you probably know them for their flagship Madden NFL series for XBox and PlayStation. Additionally, the company develops and publishes sports titles like FIFA, NHL and UFC, as well as Star Wars titles like Battlefront and Jedi: Fallen Order. If you own a home gaming console, there’s a good chance you own more than one EA title as well.
EA is a large cap stock with a $35 billion market cap and more than 11,000 full-time employees. The company has a near monopoly on console sports games thanks to its licenses with FIFA and the NFL, giving it a large barrier against competitors.
Take-Two Interactive Software Inc. (NASDAQ: TTWO)
One of Electronic Arts’ biggest competitors is Take-Two Interactive, the gaming studio behind popular titles like Grand Theft Auto, Red Dead Redemption and Borderlands. The company develops its games primarily for home consoles like XBox, PlayStation and Nintendo Switch. In addition to its action adventure and shooter titles, Take-Two has partnerships with the NBA, WWE and PGA to develop sports games under their franchise.
Take-Two is based in New York City, has 6,500 full-time employees and sports a market cap of $16 billion, making it one of the smaller companies on this list. But with a wealth of brand name titles and licenses with popular sports leagues, Take-Two is set up for plenty of future success.
Sony Group (NYSE: SONY)
Sony Group Corporation designs, develops, produces and sells electronic equipment that has come to include instruments and consumer electronics devices in the United States, Europe, China, the Asia-Pacific and around the world. The company also distributes supporting software titles and add-on content through digital networks to its customers.
Overview: Gaming Stocks
If you’re reading this now, you likely belong to the first generation to grow up with a video game console in your home. Video games used to exist only in arcades and computers, but the 1980s ushered in the era of the home console. Today, video games can be played at home, in the arcade or while sitting on the bus, if you have a smartphone. Video game stocks are also constantly evolving, but you can gain exposure to the industry from a number of different directions. However, most companies in the industry fall into one of two categories: hardware or software.
Companies in the hardware category make the parts and equipment needed to bring video games to life. For example, Microsoft manufactures the XBox series of gaming consoles, but NVIDIA makes the processing chips that enable the consoles to work properly. Other types of gaming hardware include controllers, gaming headsets, cameras, gaming keyboards, chargers and gaming mice. Some companies put together special products like a gaming laptop designed to play rather than work.
Because the video game industry is so diverse, you can buy into a video game stock in several sectors, allowing you to gain exposure to a range of releases, products and profit streams.
In the software category, you have game developers and publishers like Take-Two Interactive, Electronic Arts and Activision Blizzard. Some companies pull double duty in hardware and software, like Nintendo (OTCMKTS: NTDOY), which publishes the Super Mario series of games and makes consoles like Nintendo Wii and handhelds like Nintendo Switch. Others create mobile games and software, and the gaming experience often changes the way these companies are viewed.
How to Buy Gaming Stocks
To buy gaming stocks, you’ll need capital, a broker that sells the shares and a trading plan for the stock. Select the broker that best suits your style and trading goals, but make sure it has the stocks you’re looking to buy. Once you’ve opened and funded your account with your broker of choice, you can execute your trade and add gaming stocks to your portfolio.
You’re looking for revenue growth, popular video game franchises and gameplay that reaches several age brackets.
Best Online Brokers for Gaming Stocks
Some gaming stocks are located outside the United States or trade on OTC markets, so you’ll need to choose a broker that has access to these shares. Here are a few of Benzinga’s favorites:
Features to Look for in Gaming Stocks
Strong barriers to entry: The video game industry is one of repetition. When a game or app reaches extreme popularity, it’s inevitable that a dozen imitators will enter the fray. If you’ve been gaming long enough, you’ve heard of a game being a Doom clone or Halo killer in reference to two of the most popular First Person Shooters of all time. The companies on this list have brand names, customer loyalty and the expertise and funding to thwart competitors.
Brand recognition: Gamers are fickle beasts, which is why the best companies have brand notoriety. Whether it’s the processing power of NVIDIA GPUs or the staying power of game series like Madden or Grand Theft Auto, the top stocks here all have recognizable names and features that gamers will keep coming back to. Some big names also pull name recognition, including Ubisoft Entertainment, Tencent and Rockstar Games.
High gross margins: A company needs to turn a profit to be successful. Developing video games, consoles and equipment can be an expensive process, and many fledgling studios lose money trying to break into the industry. Gross margins are a good barometer to show companies that have excessive overhead costs, which could limit profitability. Not every video game developer has the same margins, and some video game franchises are making more money than others. You cannot base your investment decisions based on commercials and social media buzz.
Pros and Cons of Gaming Stocks
Every industry has benefits and drawbacks when it comes to investing, and the gaming industry is no different. Here are a couple pros and cons to keep in mind when doing your research on video game stocks.
Pro: Exceptional Growth Prospects
Video games have entered the community zeitgeist, and kids spend more time in front of screens. Not only do they enjoy playing games, but they also enjoy watching others play thanks to services like Twitch and popular professional eSports gamers. The popularity of gaming continues to grow, and there’s no sign of it slowing anytime soon.
Con: Current Environment Poor for Risk Assets
Even the best companies take haircuts in the wrong part of the business cycle. Early 2022 could signal an environment that doesn’t bode well for software and tech companies. Interest rates are set to rise, and inflation is at 40-year highs — these factors aren’t tailwinds for an industry like gaming.
Pro: Many Ways to Play the Industry
The gaming industry isn’t just consoles and titles. You have game developers and publishers, hardware manufacturers, semiconductor producers and network and streaming systems. As more states legalize gambling and sports betting, online table games will increase in popularity. You can play the gaming sector from a number of different angles.
Con: Industry Trends Shift Quickly
The main demographic for the gaming industry is kids. And what are kids notorious for? Short attention spans and changing interests. The gaming industry can change on a dime thanks to a new craze that sweeps schools, much like Pokemon Go did a few years ago. Also, kids grow up and spend less time gaming, which means you’re needing to appeal to a new section of the demographic. Companies with staying power understand the need to reinvent themselves.
Are Gaming Stocks a Good Investment Right Now?
Like much of the broader tech sector, gaming stocks have been hit hard since the beginning of 2021. Some high-flying companies like Roblox and Sea Limited (NASDAQ: SE) have seen their stock prices slashed over the last 12 months. Many of the big winners from 2020 have become the biggest losers in today’s market. With inflation high and monetary policy becoming less accommodative, it might be more prudent to wait until this current trend reverses before allocating too much capital to gaming stocks.
Video Games Will Continue to Thrive, But Picking Winners is Hard
Look around the room next time you're at a restaurant. Everyone is glued to a screen, playing some kind of online game or puzzle. Video games are no longer relegated to the home or arcade because you have a gaming console in your pocket at all times. Kids today want to go pro playing Fortnite just as much as they want to play pro football or basketball. The trick is picking the winners. Video games are definitely here to stay; however, selecting the top gaming stocks requires research, trend-following and luck. Modern humans may possess the shortest attention spans in human history here — invest appropriately.
Frequently Asked Questions
What are gaming stocks?
Gaming stocks are shares in companies that offer gaming products or services.
Are gaming stocks a good investment?
People continue to play games at an increasing rate, making gaming stocks a likely good investment.
What are the best gaming stocks?
To find the best gaming stocks, Benzinga offers a list of its recommended stocks in the above article.
About Dan Schmidt
Dan has written about a wide range of topics including stocks and investing, cryptocurrencies, banking, student loans, and credit cards.