According to Global Market Research, the global eSports market cracked the $2 billion level in 2023. Not surprisingly, many gaming stocks have outperformed the market. Some like Take-Two Interactive (NASDAQ:TTWO) trade near their 52-week highs as of this writing.
You can say the growth of eSports and the red-hot gaming culture proves the law of unintended consequences. Or, you can say it was entirely predictable. When much of the world was indoors in 2020 and early 2021, gaming was a form of escape. If it only takes 30 days to establish a habit, there was more than enough time for a gaming habit to grow.
However, if you were late to the eSports movement, you still have time to get involved. The market is expected to reach a value of over $8 billion by 2032. That presumes a compound annual growth rate (CAGR) of 16.5%.
And getting involved in this growing sector doesn’t carry outsized risk. Some of the best gaming stocks are among the biggest names in the technology sector. Let’s examine three companies that will be part of this sector’s growth for the next decade.
Microsoft (MSFT)
As if you needed another reason to own Microsoft (NASDAQ:MSFT) stock, the company received regulatory approval for its $68.7 billion acquisition of Activision Blizzard in October 2023. The deal brings the iconic titles like Call of Duty and Candy Crush under the Microsoft umbrella, giving the maker of the Xbox even more clout in the gaming space.
However, MSFT stock is up 55% in 2023, for reasons that have nothing to do with gaming. At least not yet. The company’s investment in OpenAI is positioning the tech giant to be a leader in generative AI. To that end, Microsoft’s Xbox division entered into a partnership with Inworld AI. This will allow Microsoft to create and introduce generative AI into aspects of video game development. Also, Microsoft plans to use its cloud-based AI platforms such as Azure to assist in video game creation.
Analysts have a consensus price target of $410.47 which is an 11% increase from the MSFT stock price. However, recent price targets are much higher which will be fuel for the stock to move higher.
Meta Platforms (META)
When Meta Platforms (NASDAQ:META) first announced its intention to go all in on the metaverse, it drew some criticism. One reason for that was the metaverse seemed hard to define. It may not be exactly what Meta intended, but virtual reality (VR) gaming may be the “killer app” that the company needed to pave the way towards the metaverse.
Not long ago, Meta’s VR headsets were out of reach for many consumers. They still carry a hefty price tag, but they are becoming more mainstream. And recently, the company announced that Valve Corporation is releasing Steam Link for all of Meta’s Quest headsets. This gives gamers a “one-stop solution” to wireless PC virtual reality (PCVR) gaming.
Also, like its social media platforms, Meta Platforms can monetize gaming by selling ads and via in-app purchases. The company may never be the leader in this category. But at a time when the markets are expected to remain volatile, META stock offers more than fun and games.
Electronic Arts (EA)
For a pure play on gaming stocks, you can look at Electronic Arts (NASDAQ:EA). It’s the developer of titles like Battlefield, The Sims, and Need for Speed. Also, it licenses popular titles such as FIFA, Madden NFL, UFC, as well as the Star Wars brands.
Like Take-Two mentioned above, EA stock is trading near its 52-week high after being up 11% in 2023. The stock is up approximately 5.5% in the month following its November 1, 2023 earnings report. At that time, the company beat on the top and bottom lines and showed year-over-year improvement in gross margin which was up 40 basis points at 76.2%.
But even with an expectation of 10% earnings growth in the next 12 months, is all the growth priced into EA stock? With a 23x forward price-to-earnings (P/E) ratio, the stock is a bit expensive as purely a consumer discretionary stock. However, it looks a bit cheap for a software/technology stock.
Analysts have a median price target of $147 for EA stock. Deutsche Bank raised its price target from $140 to $150 after the earnings report. And out of 28 analysts, 17 give the stock either a strong buy or buy rating.
On the date of publication, Chris Markoch 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.
