After getting a nice bump during the height of the pandemic when everyone was suffering from the boredom of lockdowns, video game stocks have since been among the worst-performing industry groups thanks to a vaccine rollout that has gotten people out of the house again.
Still, with 67% of the American adult population and 76% of American children actively playing video games, it’s a good opportunity to buy the dip.
Valued at over $151 billion in 2019, the global games market is set to bring in $175.8 billion in revenues this year, with global players set to hit 2.9 billion people.
That revenue represents a slight 1.1% decline over 2020’s pandemic-driven surge, but this is still an industry set for steady growth far into the future, according to Newzoo.
Our top three stocks include one to buy on the dip, an unstoppable chipmaker, and the best diversified company on the gaming scene:
#1 Take-Two Interactive (TTWO)
New York City-based Take-Two Interactive is a video game holding company that owns two major publishing labels, Rockstar Games and 2K, both of which operate internal gaming studios. Most notably, Rockstar games publishes the games from the Grand Theft Auto series.
Their most recent Grand Theft Auto game, Grand Theft Auto V, is the second-highest-selling video game of all time behind Minecraft.
2K sells well also, with their most popular game being NBA 2K. This title sells around 5 million copies each year. Take-Two Interactive is down 18% YTD, but don’t let the COVID-skewing share price fool you: The success of these games suggests a strong showing in the future.
You have to look beyond the COVID data on this one. Over the past five years, TTWO is up nearly 297%, so a 1% decline from the lockdown-boosting period should scare anyone away.
#2 NVIDIA (NVDA)
If you add Nvidia to your portfolio, you won’t be buying on the dip. There’s no stopping this chip stock that is benefiting from a global shortage that’s affecting everything from the gaming industry to the auto industry.
Nvidia not only did well through the pandemic, but continues to do well following reopening.
This is because the company designs processing units for the gaming and professional markets, as well as chip units for mobile computing and the automotive market.
With the chip shortage still going on, NVIDIA has been raking it in as the demand for what they produce is so high.
Year-to-date, Nvidia is up over 60%, and the rest of this year looks set for continued growth.
IDC expects the semiconductor market to see over 17% growth this year, compared to just under 11% growth in 2020.
The PC industry, which means the gaming industry, as well, is now highly dependent on chipmakers for their own growth. That means robust sales for companies like Nvidia. Bank of America expects semiconductor sales to hit $544 billion this year, with sales growth upped to 24% … and Nvidia is a clear leader in the space.
#3 Sony Group Corp (SONY)
While the pandemic would normally have been a boon for Sony, it wasn’t prepared for a supply chain disaster and had a harder time taking advantage of the lockdown.
When it released the much-awaited and highly-desired Playstation 5 in November 2020, supply chain issues interfered with production and what ensued was a huge battle between bots and regular consumers to get their hands on one for scalping prices. The huge resale market for the coveted gaming consoles saw people reselling them for hundreds of dollars above retail.
Sony’s share price is actually up 5.5% YTD, but the price over the year has been rather volatile.
As we try to get on the other side of the pandemic, this is still a PS5 story. Sony is looking to put out more PS5s for the rest of this year, scrambling to meet high demand. A year after the botched release, the big talk online is still when specific retailers will be restocking the PS5. But now, Sony is hoping to sell new TVs to PS5 owners that include special PS5-friendly features. They also have a lineup of highly anticipated video game titles coming out soon.
Sony is a safer bet among gaming stocks, but it’s not just a gaming stock. This is a diversified basket that offers stable growth, with revenues up 9% for fiscal 2020, and a 101% increase in net profit. And unlike Nvidia, there was no dip in growth post-pandemic. Q1 2021 saw net profits rise 15%.