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Video Game Stocks to Consider Investing In

Thursday, February 13, 2020 | Matthew Sweeney
Video Game Stocks to Consider Investing In

Video games stocks are issued by companies that design and distribute video games. Some of these companies also manufacture video game hardware, such as gaming consoles. The industry’s increasing revenue growth has Wall Street taking notice.

Video Game Companies

These video game companies have reached some of the most exciting levels of the stock market game, achieving amazing revenue goals and surpassing investor expectations.

Video Game Industry

In technical terms, a video game is where players interact with other players or a machine by using some sort of controller or sensor device; visual representations of their actions are electronically portrayed in some other plane of reality created by game makers.

Of course, video games are only a fairly recent invention. Despite this, publicly traded gaming stocks have seen a huge increase in earnings for investors, as video game companies and game studios continue to meet, and often surpass, the consumer need for entertainment.

The first video games were simple affairs, like Pong: A game where opponents would bounce a ball back and forth on the screen by using a controller. This game was manufactured by now-defunct game designer Atari. Many of the first video games were coin-operated arcade games, such as Computer Space in 1971. The first in-home game console also appeared in the 1970s: The Magnavox Odyssey. Atari followed suit by manufacturing an in-home version of Pong, the popularity of which spurred numerous competitors to make their own versions, creating a new video game industry.

The golden age of arcade-style video games began with Space Invaders, which lead to other such classics like Pac-Man, Donkey Kong, and Centipede. The success of these games helped game studios like Atari and Nintendo continue their development of in-home gaming consoles. Many consumers look back fondly on that generation of Sega (now defunct) and Nintendo, which spawned a culture of video game characters like Super Mario and Donkey Kong.

As personal computers became more commonplace so did PC gaming, as an alternative to gaming on a console system. Video game publishers focused on the PC space were able to benefit from the rapidly increasing processing power of consumer-facing computer models. They were able to create games with more flexibility, complexity. With the advent of the internet, PC games offered the possibility of playing against other human opponents—a possibility that video game makers like Nintendo and Sony were not able to offer until later generations of console models.

Today, with mobile phone use on the rise, mobile gaming is one of the fastest-growing industries. Users of social media platforms like Facebook can tap into their pool of social connections to play mobile games like Candy Crush Saga, and faceoff with others on the go.

Video games have increasingly become a more accepted social activity for young Americans, who may spend as much as one hour or more per day playing video games. Some have criticized this game culture for fostering cyberbullying and unhealthy habits like staying up late. They also point to violent video games as possibly responsible for an increase in real-world violence. But despite these dissenting opinions, it is clear that video games are here to stay.

Many video game companies are valued in the billions and draw billions of dollars in revenue every year. Moreover, they are at the cutting edge of virtual reality and augmented reality technologies, which will also likely prove useful in diverse industries for the purpose of pinpointed technical training. That said, while the stock price of video game companies may not technically be on the list of dollar stocks, they are certainly inexpensive compared to their potential future value. They are poised to lead one of the most exciting technological advances in history.

Video Game Stocks That Could Soar This Year

Nintendo (NASDAQ: NTDOY) is one of the world’s most recognizable names in gaming and the creator behind legends like Donkey Kong, Super Mario, The Legend of Zelda, and Pokemon. This Japanese company with revenues above $10 billion started out in 1889—long before video games—manufacturing playing cards. After decades of unsuccessful stints in various niche industries, they finally hit gold in the 1970s with in-home gaming hardware. They then went on to be the first to come up with handheld gaming devices, which later became popularized as GameBoy.

Sony Interactive Entertainment (NYSE: SNE) is the name behind PlayStation, which grew out of a failed partnership with Nintendo to make a gaming console that would play compact disks. The resulting PlayStation broke Nintendo’s lead on the video game industry, snatching up a 61% market share. Succeeding generations of PlayStation did not always perform as well, but Sony has sold millions of units around the world. Sony has also expanded into handheld devices with PlayStation Portable, and virtual reality with PlayStation VR. Some pundits view Sony and its PlayStation brand at the vanguard of the VR charge.

Microsoft (NASDAQ: MSFT) is perhaps best known for developing and licensing computer software. However, in 2001 they entered the video game market to compete with Sony and Nintendo with the release of Xbox, a gaming console that was acclaimed as graphically far superior to its competitors. The next generation of Xbox was Xbox 360, which boasted a new feature: Xbox Live. This allowed gamers to download games, eliminating the need for game discs, and to play against other gamers online. With Xbox One, released in 2013, Microsoft experimented with eliminating the traditional handheld controller for some games and replacing it with the Kinect device. The device contained cameras and infrared sensors and players simply moved in front of the device in order to interact with the game.

Valve is a privately held company that develops and distributes video games. It was started by two former Microsoft employees—incidentally, it is headquartered near Microsoft in Bellevue, Washington. Valve started out making games for the PC (that is, video games that did not require a unique console, but could be played right on a computer) like Half-Life, a first-person shooter. With several generations, this game has maintained its popularity even through today. Valve has since moved into producing hardware like the Steam Machine and other computers that are specifically produced with specs geared toward gaming—so-called gaming PCs.

Rockstar Games is a wholly owned subsidiary of Take-Two Interactive Software Inc. (NASDAQ: TTWO), which was established to take on the assets of Take-Two’s recent acquisition, BMG Interactive. Rockstar has specialized in action-adventure and racing games like Grand Theft Auto, which is its star product and one of the most popular video games of all time. Grand Theft Auto V has sold over 110 million copies worldwide since its release seven years ago. Rockstar also produced Western-themed Red Dead Redemption, the first-person-shooter Max Payne, and survival horror Manhunt.

Electronic Arts Incorporated (NASDAQ: EA) is the second-largest video game company in Europe and the Americas in terms of revenue, which surpasses $5 billion, and market cap, just behind Activision Blizzard. EA was founded in the 1980s by an Apple employee and became a pioneer in the home computer gaming industry. EA ultimately decided to follow a model of acquiring smaller franchised games, then developing and distributing them for greater profit. The Sims, Medal of Honor, Command & Conquer, FIFA, Madden NFL, and NBA Live are all globally recognized outputs of EA’s creative work, as are the Star Wars video games.

Activision Blizzard (NASDAQ: ATVI) was formed through a merger of Activision Publishing and Vivendi Games, and includes the game maker King, creator of a new wave of popular gaming apps like Candy Crush Saga. Blizzard is the force behind massively multiplayer online games (MMO) like World of Warcraft, Diablo, and Starcraft. Activision itself is the name behind Tony Hawk’s, Call of Duty, and Guitar Hero. Activison also explored new gaming territory with Skylanders, a toys-to-life model where actual figurines are used to interact with the game, an idea previously explored by game maker Zowie in 1999.

Ubisoft Entertainment SA (Euronext Paris: UBI) is a French video game company and the name behind best-selling action-adventure games like Assassin’s Creed and Prince of Persia, along with first person shooter like Tom Clancy’s. Ubisoft also makes more family-friendly games like the cartoonish adventure Rayman and the active, motion-based dancing game Just Dance. Interestingly, Ubisoft began as a family business selling agricultural support services, before it transitioned to selling mail-order hardware imported from the UK, which allowed them to undercut French suppliers. Recognizing the growing demand for video games, Ubisoft got into the business and entered a still-extant phase of worldwide growth.

BioWare is a wholly owned subsidiary of EA (NASDAQ: EA). This Canadian company specializes in role-playing video games that immerse players in a fantasy world such as Baldur’s Gate, Neverwinter Nights, and Jade Empire. In 2011, BioWare got on the bandwagon of the popular massively multiplayer online games with Star Wars: The Old Republic. BioWare was founded by medical school graduates, who used their programming experience gained from making medical simulation programs, to pursue their side-love of video gaming. Looking to take it to a professional level, they pooled their resources to start up with $100,000

Capcom Company Limited (TYO: 9697) is another Japanese gaming company known for creating some of the bestselling game franchises of all time: Street Fighter, Mega Man, Resident Evil, and Dead Rising. They also created some games licensed by Disney and based on their animated series or movies, like Gooftroop, Darkwing Duck, and Talespin. In its early years, Capcom focused on manufacturing video arcade machines. Its first product was created in 1983: A coin-operated video game called Little League. Capcom then broke into home console gaming through a partnership with Nintendo, but it remained one of the last game designers to stay focused on 2D games. Capcom has also released movies based on its Street Fighter and Resident Evil franchises, which it views as a sales channel for its video games.

Epic Games is a privately owned company in North Carolina that developed one of the first commercially available game engines, Unreal Engine, which allows consumers to develop their own video games. Unreal Engine also powers some Epic Games products, such as Gears of War, Unreal, Infinity Blade, and the increasingly popular Fortnite. Fortnite itself is split into several models, one of which is a battle royale, another of which is a cooperative survival game, and the other a world-building platform. Fortnite Battle Royale, in particular, has drawn in 125 million players in its first year and generated hundreds of millions of dollars per month, helping reach Epic Games reach a $15 billion valuation.

Video Game ETF

Mature retail investors may be surprised to learn that there are indeed ETFs dedicated exclusively to the gaming industry. The future of entertainment is increasingly about video gaming and the billion-dollar success of many gaming companies shows it. Even so, it can be hard to avoid picking out winners, while avoiding the biggest stock losers.

A safe bet is to invest in an exchange-traded fund, a pooled investment vehicle where investors buy priced shares on the stock market instead of contributing cash. The ETF is in turn invested in other companies representing a specific niche, which in this case would be video games.

Check out the ETFMG Video Game Tech ETF (appropriately abbreviated as GAMR), the first ETF dedicated to the video gaming industry. Key names among the holdings include Nintendo, Activision Blizzard, and Nvidia Corp, which is a company that designs graphics processing units for the gaming industry. With the increasing popularity of sports games and massively multiplayer online games, the Roundhill BITKRAFT Esports & Digital Entertainment ETF (quirkily abbreviated as NERD) is another appealing choice; some of its holdings include Activision Blizzard and Ubisoft.

Is Investing in Video Game Stocks a Good Move?

In 2017, the US video game market was valued at around $18 billion. Projections for the end of 2022 are coming in around $230 billion: More than tenfold growth. Now is the time to get in on video games stocks, while they are still comparatively among cheap stocks to buy now. Video game companies are also at the cutting edge of new technologies like virtual reality and augmented reality, making these stocks into accessible ways of tapping into the future of tech.

Moreover, while many stocks in the tech industry are volatile and speculative, video games have become increasingly more accessible and affordable to consumers. So, even though they can be considered a consumer discretionary, they will most likely continue to see business no matter the state of the market.

Some video game companies do not currently pay dividends, but investors focused on a dividend investing strategy can either wait this out, or rely on other stocks in their portfolio, while the video game stocks increase their overall value through their likely growth. As with any security, any stock advisor would remind investors not to place all their eggs into one basket. Even so, it would seem that video game stocks have proven worthy of their share price and are still poised to see further growth.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Sony (SNE)1.8$78.96+1.7%0.43%16.11Buy$96.00
Microsoft (MSFT)2.2$200.39-1.2%1.02%34.85Buy$217.45
TAKE-TWO INTERACTIVE SOFTWARE (TTWO)1.5$158.49-0.6%N/A40.64Buy$162.07
Electronic Arts (EA)1.8$125.90+0.5%N/A18.65Buy$141.31
Activision Blizzard (ATVI)1.9$80.09+1.7%0.51%34.23Buy$85.80
UBISOFT ENTMT S/ADR (UBSFY)0.5$17.15+0.6%N/A-857.50BuyN/A
Electronic Arts (EA)1.8$125.90+0.5%N/A18.65Buy$141.31
CD Projekt (OTGLY)0.1$28.20-6.8%N/AN/AHoldN/A
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The stock market has been growing since the New York Stock Exchange opened its doors in 1817. Sometimes, a stock will outpace the rest of the market in terms of growth. These skyrocketing securities—or the ones that analysts expect to skyrocket—are called growth stocks.

What Every Investor Needs to Know About Growth Stocks

Growth stocks are a great opportunity for an investor to make money in the stock market, but you’ve got to know what you’re going to buy or sell. A good understanding of growth stocks will help you get there.

At the beginning of a bull market, you can almost choose stocks randomly and find yourself a winner. Now that we are entering the ninth year of the current bull market, growth stocks have appreciated considerably and it's becoming far more challenging to find stocks with real opportunities for appreciation.

Growth companies are still largely outperforming their value counterparts in the United States and the rest of the world largely because of low interest rates, improved corporate earnings and global economic growth. Over the last five years, the S&P 500 Growth Index has returned 14.22% per year. During the same time, the S&P 500 Value Index returned just 12.94%.

Now that the bull market is now nearly a decade old, stocks have become very expensive. Value investors are largely sitting on the sidelines and growth investors are having a hard time figuring out where the remaining growth opportunities exist.

If you are looking for growth stocks in an increasingly small field, we have identified the 10 best growth stocks to buy right now based on their expected earnings growth over the next several years. These companies are all growing rapidly and will likely see double-digit earnings growth next year.

View the "Best Growth Stocks - Best Stocks to Buy Now".

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