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The novel coronavirus pandemic led many to play video games while practicing social distancing. As a result, video game sales and playtime increased dramatically. The growth in gaming accelerated beyond what many analysts imagined. This, in turn, drove record-breaking success for many gaming stocks like Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA). Now, some question whether the success will continue.
There’s plenty of reason to think that it will … at least for some stocks.
While detractors may argue that the impressive rise in video gaming will fade in the new normal, this isn’t likely. Although the short-term growth in the sector won’t be as significant after the pandemic, many new gamers will continue the hobby when the Covid-19 craze subsides. This makes the pandemic an unexpected catalyst that should keep bolstering their long-term success.
Here are several reasons investors should be optimistic about video game stocks heading into the new normal (and 2021 more broadly):
- Two industry leaders will debut next-generation video game consoles this holiday season. Each new console cycle brings hit sequels to established franchises with it (for example, the Call of Duty franchise). That means more revenue for video game companies.
- Likewise, new console cycles drive companies to develop new, groundbreaking intellectual properties. We’ll have plenty of other mega-hits like Fortnite and Apex Legends … it’s just a matter of time.
- The popularity of esports continues to rise. This was true despite the pandemic. It will keep rising after Covid-19 fears dissipate.
- Video game viewership on popular streaming platforms like Amazon’s (NASDAQ:AMZN) Twitch continues to rise. This includes casual viewing experiences, not just esports.
- There’s no reason to think people will abandon gaming in the “new normal.” Some will drop the hobby, but more are likely to stick with it. You can thank games’ addictive and therapeutic qualities for that.
Many gaming stocks will undoubtedly stand out in the months ahead. However, the most appealing video game plays will advantage several of these points and the boost in popularity caused by the new virus.
Here are three video game plays that fit this criteria:
- Microsoft (NASDAQ:MSFT)
- Nvidia (NASDAQ:NVDA)
- Sony (NYSE:SNE)
There will be many hot video game stocks to buy in the years to come, but the enduring success of these three companies in particular seems inevitable. The fact that each company isn’t tied just to its gaming prospects also adds an important layer of diversity. It’s also part of what makes them the sort of stocks you’ll find in Matt McCall’s Investment Opportunities. Here’s a closer look at what makes each a promising investment on any dip.
Gaming Stocks to Buy: Microsoft (MSFT)
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Although the proposed deal between Microsoft and TikTok ultimately fell through, there are still plenty of reasons to consider buying MSFT stock.
One of them is its emphasis on gaming. Specifically, Microsoft will release its Xbox Series X console on Nov. 10. This marks the start of the next console race, for which countless developers are designing new games.
But let’s slow down the hype a little first. There’s reason to think that the new console might not be a heavy hitter right off the bat. Namely, unlike prior generations, there’s no immediate incentive for gamers to upgrade. This is especially true since the console lacks true next-generation titles that are exclusive to its system.
However, in the longer-term, as more new games push the limits of last-generation’s consoles and it’s clearer that an upgrade is necessary, there’s no reason to think it won’t be successful. It will have strong competition from Sony’s PlayStation 5, but popular franchise exclusives like Halo and Gears of War will solidify its appeal. Microsoft just bolstered this angle with its $7.5 billion purchase of Zenimax, adding such franchises as The Elder Scrolls, Doom and Fallout. That and innovative IP’s that use the consoles’ superior strength will help boost interest in the months to come, as with prior console generations.
The leap might not be as immediately clear, but eventually the updated hardware will enable gaming experiences we’ve never seen before. That’s likely when the Xbox Series X console will truly start to shine. Add to that its wallet-friendly deals like its Game Pass subscriptions (soon to include support from EA) and gamers have another incentive to stick with Microsoft’s products over Sony.
None of this even factors in the countless non-gaming reasons to buy MSFT stock. For example, its impressive success in cloud computing with Azure and the increased need for its office suite in remote-work environments.
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Although the next-generation consoles use AMD (NASDAQ:AMD) hardware, there are still several reasons why NVDA stock is one of the best gaming stocks to consider on any dip. (AMD is still a solid option too, of course.)
However, the reason why I pick NVDA over AMD from a gaming standpoint is that it stands to reap the rewards of an upcoming upgrade cycle in PC gaming. Many PCs gamers use right now lack the power to match the next-generation consoles. But PC gamers still largely prefer Nvidia hardware (as demonstrated by Steam data). As such, once next-generation video games hit the market and the system requirements to run these titles increase, many gamers will need or want to upgrade their systems. Many of them will buy Nvidia’s hardware in the process.
Its GPUs and the inevitable PC upgrade cycle are what help make Nvidia an appealing pick. However, that’s only scratching the surface.
Nvidia is also a key part of what InvestorPlace’s chief technology analyst Matt McCall calls the “5G Highway.” While many investors are focusing on the 5G road builders like Nokia (NYSE:NOK), McCall believes that the companies that populate the 5G “road” itself will be the true all-stars. With its efforts in artificial intelligence, NVDA stock isn’t a road-builder — it’s a key driver in the machine learning revolution that will effect countless industries.
If that wasn’t enough reason for continued bullishness toward Nvidia, its ARM acquisition seals the deal. The deal with ARM will enable Nvidia to expand into yet another lucrative space: mobile communication. All of these factors make it one of the more diverse video game stocks to buy for the long-term.
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Out of all the gaming stocks listed so far, Sony is the most appealing from a pure gaming standpoint. Now, that’s not to say that it lacks diversity. After all, Sony also focuses on film and music. But gaming is often the prospect that sparks the most investor interest. This is especially true when we’re at the doorstep of a new console generation.
Its PlayStation 5 will hit shelves Nov. 12, with $400 and $500 varieties. The core strength for Sony’s console over the Xbox is its exclusive gaming library heading into the new console cycle. While most of Microsoft’s offerings will also be available for the previous generation of Xbox consoles and PC, Sony is appealing to gamers with true next-gen hype. Specifically, Sony teased the debut of God of War: Ragnarok in 2021 for the PS5.
Exclusive sequels to established franchises like God of War are what will drive many gamers to upgrade. This is especially true in a world where consoles are increasingly resembling PCs with longer potential lifespans and cross-compatibility. (Why upgrade if your old console can still run the game?)
As promising as the PlayStation 5 seems, SNE stock took a sizable dip recently on rumors that production of the consoles hit a snag. While we’ll have to wait and see if these rumors are true, it’s important to maintain caution. Still, any near-term dips could provide promising buying opportunities. From a long-term perspective, Sony seems on track to entice more gamers than Microsoft with its true next-generation offerings.
But these gaming stocks are just the tip of the iceberg. While each is on track for long-term success, investors can discover new companies developing revolutionary technologies to make the most of our hyper-connected future.
InvestorPlace’s chief technology analyst Matt McCall has curated The 5G Highway Super Portfolio … a tactical approach to investing in 5G that maximizes short-term and long-term gains. In this special report, he uncovers the 5G equivalents of the greatest tech behemoths and more.
With a proven track record in making calls on tech titans far before they dominated the field, his research team has demonstrated the know-how needed to sift through the 5G duds to find the real gems. He has found companies at the forefront of key 5G revolutions: movements in driver-less cars, virtual reality and remote surgery … just to name a few.
On the date of publication, Robert Waldo did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Robert Waldo has been a web editor for InvestorPlace.com since 2016.
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