11 Best Video Game Stocks To Invest in Now

Published on May 2, 2022 at 11:44 am by Omer Farooq in Hedge Funds, News

In this article, we will look at 11 best video game stocks to invest in now. If you want to skip our detailed analysis of the video game industry, you can go directly to 4 Best Video Game Stocks To Invest in Now.

The video game industry takes up a major chunk of the entertainment industry and sits at a higher valuation than both the music and movies segments combined. What once appeared as two-dimensional animations are now making use of cutting-edge technology to deliver 4K resolutions and life-like graphics with ray-tracing and physically accurate motion dynamics. It was estimated that in 2021, the number of video game players across the globe exceeded 3 billion.

Gaming Market Analysis

According to Mordor Intelligence, the gaming market was valued at $198.4 billion in 2021 and is expected to hit $339.95 billion by 2027, growing at a CAGR of 8.94% over the forecasted period. This growth is expected to be driven by a range of factors. With technological advancements reshaping the way we interact with games, and games being a key element of the metaverse, AR and VR-enabled games are leading the industry as they provide a more interactive user experience. Cloud-based gaming services are rising in popularity among the gaming community, and according to Newzoo, the cloud gaming market is expected to reach a billion-dollar valuation by the end of 2022, up from $633 million in 2020. Moreover, the adoption of 5G technology and high bandwidth connections has spiked the number of internet users and in turn online gamers. According to Datareporal, the number of internet users grew by 7.7% in 2021 from 2020. Approximately 5 billion people across the globe have internet connectivity, and as of April 2022, the number of internet users has grown by 200 million from April 2021 and is growing each day.

Key Trends and Major Players

According to the Gaming Market 2022 report by Mordor Intelligence, the mobile gaming segment is bound for explosive growth and is expected to surpass both console and PC gaming. The increased accessibility and portability of mobile phones, paired with 5G bandwidth and AR/VR gaming applications is what will drive the growth of mobile gaming. According to Statista, global mobile AR users will grow to an estimated 1.7 billion individuals by 2024, more than twice as many as there were in 2021. By the end of 2022, the number of individuals using mobile AR applications will hit 1.1 billion. By region, the Asia Pacific is expected to dominate the gaming market with China, Japan, and South Korea exhibiting great growth potential over the years from 2022 to 2027.

Major players in the gaming industry include Activision Blizzard, Inc. (NASDAQ:ATVI), NVIDIA Corporation (NASDAQ:NVDA), and Microsoft Corporation (NASDAQ:MSFT). Read on to learn about more video game stocks to invest in now.

Photo by Erik Mclean on Unsplash

Our Methodology

To compile the 11 best video game stocks to invest in now, we reviewed companies working in the space and measured their level of involvement with video games by looking at what video game products they are offering. We then looked at companies’ earnings reports, their analyst and investor sentiments, and their product portfolios. We derived the hedge fund sentiment from Insider Monkey’s database of 924 hedge funds. The stocks are ranked in ascending order of hedge fund holders.

11. Nintendo (OTC:NTDOY)

Number of Hedge Fund Holders: N/A

Nintendo (OTC:NTDOY) develops, manufactures, and distributes electronic entertainment products in Japan, the Americas, Europe, and internationally. The company’s flagship product is the Nintendo Switch, which as of December 2021, has brought the company sales of over 104 million units.

On March 23, 2022, Macquarie analyst Yijia Zhai upgraded Nintendo (OTC:NTDOY) to Outperform from Neutral with a 71,000 yen price target.

Like Activision Blizzard, Inc. (NASDAQ:ATVI), NVIDIA Corporation (NASDAQ:NVDA), and Microsoft Corporation (NASDAQ:MSFT), Nintendo (OTC:NTDOY) is one of the best video game stocks to invest in now.

10. Sony Group Corporation (NYSE:SONY)

Number of Hedge Fund Holders: 28

Sony Group Corporation (NYSE:SONY) designs, develops, produces, and sells electronic equipment, instruments, and devices for the consumer, professional, and industrial markets worldwide. The company, through its subsidiary Sony Interactive Entertainment, is well-known in the gaming industry for its PlayStation consoles of which the latest is the Sony PlayStation 5.

As of December 31, 2021, over 17.3 million units of the Sony PlayStation 5 have been sold globally even amidst a semiconductor shortage. As of May 1, 2022, Sony Group Corporation (NYSE:SONY) has a trailing-twelve-month PE ratio of 12.61 making it an attractive value stock pick for investors looking to have stakes in the gaming industry.

Hedge funds are upping their stakes in Sony Group Corporation (NYSE:SONY). By the end of the fourth quarter of 2021, 28 hedge funds were long Sony Group Corporation (NYSE:SONY) with collective stakes of $609.8 million. This is compared to 19 positions in the previous quarter with stakes worth $388.8 million.

As of December 31, 2021, GAMCO Investors is the most prominent shareholder in Sony Group Corporation (NYSE:SONY) with over 1.8 million shares. This amounts to a stake value of $233.4 million.

Cooper Investors mentioned Sony Group Corporation (NYSE:SONY) in its fourth-quarter 2021 investor letter. Here is what the firm said:

“In recent years we have observed a growing market for music rights which represent another way for owners of record labels and music libraries like portfolio holdings Warner Music Group and Sony (via its subsidiary Sony Music, ~25% of our estimated enterprise value) to deploy capital, grow their businesses and create value for shareholders.

In the first few days of 2022 Warner closed a deal to acquire David Bowie’s back catalogue for about US$250m which follows on from Bruce Springsteen’s catalogue sale to Sony for upwards of US$500m and Bob Dylan’s sale to Universal Music for a similar amount.

The trend in demand for music copyrights is clearly strengthening, with competition for these assets coming from traditional music companies (Warner, Sony) as well as specialist investors and private equity…” (Click here to see the full text)

9. Unity Software Inc. (NYSE:U)

Number of Hedge Fund Holders: 36

Unity Software Inc. (NYSE:U) rose to prominence in the gaming industry after its industry-leading unreal engine brought lifelike graphics to games like Fortnite, the Batman Arkham series, and Tomb Raider, among others. On March 28, Daiwa analyst Jonathan Kees initiated coverage of Unity Software Inc. (NYSE:U) with an Outperform rating and a $110 price target. The analyst holds a positive outlook on the stock and sees primary drivers being a growing mobile gaming and metaverse market.

On February 3, 2022, Unity Software Inc. (NYSE:U) reported earnings for the fiscal fourth quarter of 2021 in which the company beat EPS estimates by $0.02. The company’s quarterly revenues grew by 43.36% and came to a value of over $315 million, outperforming market consensus by $20.16 million. Unity Software Inc. (NYSE:U) is one of the best video game stocks to invest in now.

According to Insider Monkey’s database, 36 hedge funds held long positions in Unity Software Inc. (NYSE:U) at the close of Q4 2021. The total value of their stakes amounted to $7.43 billion. Of these, Silver Lake Partners was the leading shareholder with stakes worth more than $5 billion.

ClearBridge Investments explained why Unity Software Inc. (NYSE:U) is a “smart long-term buy” in its “Aggressive Growth Strategy” first-quarter 2022 investor letter:

“We took advantage of a correction in higher-multiple stocks early in the first quarter to purchase shares of Unity Software (NYSE:U), a leading platform to create, run and monetize 3D content. With about 1.6 million monthly active creators versus roughly 15 million potential content creators in gaming alone, we believe the company’s Create Engine is still underpenetrated relative to its core addressable market. We similarly see a long runway for growth in Unity’s Operate Solutions segment given its advertising network commands single-digit share of the $60 billion mobile app install ad market today. Furthermore, we believe Unity is well-positioned to expand its addressable market to include industries beyond gaming, on both the operate and create sides of their business. The company is not yet free cash flow positive but given strong net expansion rates and high gross margins, we see a path to improving profitability over time, with management notably targeting positive free cash flow this fiscal year.”

8. Electronic Arts Inc. (NASDAQ:EA)

Number of Hedge Fund Holders: 41

Electronic Arts Inc. (NASDAQ:EA) has published some award-winning titles over the years, with the most prominent ones being FIFA and Madden NFL.

Electronic Arts Inc. (NASDAQ:EA) is attracting bullish views from analysts. On April 22 Bernstein analyst Matti Littunen initiated coverage of Electronic Arts Inc. (NASDAQ:EA) with an Outperform rating and a $157 price target on the shares. Moreover, the stock is relatively undervalued, having a PE ratio of 16.88 as of May 2 which makes it a value stock pick ranked among the top 10 video game stocks to invest in now.

At the close of the fourth quarter of 2021, Electronic Arts Inc. (NASDAQ:EA) was spotted on 41 investment portfolios. The combined stakes of these funds in the company amounted to $894.58 million. GLG Partners was the dominating stakeholder in Electronic Arts Inc. (NASDAQ:EA) at the end of December 2021. GLG Partners’ stakes in the company were valued at $194.33 million.

Here is what Jefferies Group had to say about Electronic Arts Inc. (NASDAQ:EA) in its third-quarter 2021 investor letter:

“Electronic Arts – EA (Buy, $165): EA is the most intriguing in our coverge group. In our conversations with management, the company seems eager to embrace many of the new technologies we’ve discussed in this note. Moreover, much of EA’s best IP – The Sims, SimCity, Skate, and the sports franchises are well positioned to leverage user-generated content; robust virtual economies; pay to earn mechanics, and brand crossovers. Imagine the home decor opportunities in the Sims, the architectural fun and sharing that SimCity could offer, or the build and share skatepark, skateboards, tattoos, and clothing brand crossovers Skate could provide. Why is it intriguing? Skate and SimCity haven’t had a recent title in years. The Sims launched in 2014 and lacks multiplayer. And the sports titles currently lack any mode similar to NBA2K’s TheCity. We do think all of this is in the pipeline, but timing remains uncertain.”

7. Take-Two Interactive Software, Inc. (NASDAQ:TTWO)

Number of Hedge Fund Holders: 55

Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is one of the largest video game companies in the industry by gaming revenues. The company’s various subsidiaries through which it offers its products include Rockstar Games, 2K, Private Division, Social Point, and Playdots. The company made headlines this January when it announced its acquisition of Zynga Inc. (NASDAQ:ZNGA) for roughly $12.7 billion.

This March, MKM Partners analyst Eric Handler upgraded Take-Two Interactive Software, Inc. (NASDAQ:TTWO) to Buy from Neutral and maintained his $200 price target on the shares. The analyst expects the Zynga Inc. (NASDAQ:ZNGA) acquisition to drive the growth of Take-Two Interactive Software, Inc. (NASDAQ:TTWO) by helping the video game giant to benefit from Zynga Inc.’s (NASDAQ:ZNGA) expertise in the mobile gaming market.

Hedge funds are bullish on Take-Two Interactive Software, Inc. (NASDAQ:TTWO) and Insider Monkey spotted the stock on 55 hedge fund portfolios at the end of Q4 2021. The total stakes these funds had in Take-Two Interactive Software, Inc. (NASDAQ:TTWO) amounted to $1.49 billion, up from $1.19 billion in the prior quarter with 53 positions. The hedge fund sentiment for the stock is positive.

Andreas Halvorsen’s Viking Global was the most prominent shareholder in Take-Two Interactive Software, Inc. (NASDAQ:TTWO) at the end of last December. The fund owns over 1.2 million shares of the company which equate to a stake value of $213.96 million.

Arch Capital Management shared its bullish views on Take-Two Interactive Software, Inc. (NASDAQ:TTWO) in its fourth-quarter 2021 investor letter:

“Take-Two Interactive is an American video game publisher of franchises like Grand Theft Auto (GTA), Red Dead Redemption (RDR), and NBA 2K. It is currently one of the larger positions in the fund at an 8.3% allocation.

We are bullish on Take-Two because we believe the company has competitive advantages that will keep its franchises relevant for many years. First, its games have distinct network effects that keep it insulated from competitors. Multiplayer online games are only fun if others are also playing them, creating a winner-take-all effect that has specifically benefited GTA and NBA 2K over the last decade.

On top of network effects, Take-Two has decades of developmental expertise and over 5,000 developers across its divisions, giving it semi-strong economies of scale that insulate it from most competitors. Yes, large competitors like Microsoft or any mega-cap company could invest the dollars to get to this developer count, but it is impossible for a smaller studio to make games as immersive and at as quick of a pace as Take-Two does for its customers. They just don’t have the scale…” (Click here to see the full text)

6. Roblox Corporation (NYSE:RBLX)

Number of Hedge Fund Holders: 61

Roblox Corporation (NYSE:RBLX) is rising to prominence among the Metaverse community and in the gaming industry as well. The company operates an online gaming platform and game creation system which allows users to program games and play games created by other users.

Daiwa analyst Jonathan Kees is bullish on Roblox Corporation (NYSE:RBLX) and initiated coverage of the stock with an Outperform rating and $56 price target this March. The analyst expects growth in the mobile gaming market among the young metaverse community which will drive the company’s performance.

At the end of the fourth quarter of 2021, 61 hedge funds were bullish on Roblox Corporation (NYSE:RBLX) having stakes worth over $4.03 billion in the company. This is compared to 50 positions in the preceding quarter with stakes worth $3.57 billion.

Renaissance Technologies upped its stake in Roblox Corporation (NYSE:RBLX) by an astounding 131595% during Q4 2021.

Tao Value mentioned Roblox Corporation (NYSE:RBLX) in its fourth-quarter 2021 investor letter. Here is what the firm said:

“Roblox (RBLX) got significant more attention from both institutional & retail investors after Facebook announced to rename itself as Meta Platforms. I believe the price appreciation is largely attributed to the increased attention. On business side, Roblox rolled out a few successful music events and also partnered with Netflix on testing long-form media consumption in virtual world. Apple in its iOS 14.5 rolled out an impactful change for digital advertising landscape by requiring all apps to ask users to “opt in”.

5. Advanced Micro Devices, Inc. (NASDAQ:AMD)

Number of Hedge Fund Holders: 69

Advanced Micro Devices, Inc. (NASDAQ:AMD) operates as a semiconductor company worldwide. The company makes high-end gaming processors and graphical processing units (GPUs) for both professional and gaming use. Its top gaming products include the AMD Ryzen processor and the AMD Radeon GPU. This February, Advanced Micro Devices, Inc. (NASDAQ:AMD) announced its earnings for the fiscal fourth quarter of 2021 which were primarily driven by higher revenues experienced in the Computing & Graphics, and Enterprise, Embedded, & Semi-Custom segments. The company reported earnings per share of $0.92, beating expert estimates by $0.16. The company generated revenues of $4.83 billion, up 48.77% year over year, and outperformed market consensus by $296.39 million.

Advanced Micro Devices, Inc. (NASDAQ:AMD) is experiencing rising momentum and as of May 2, 2022, the stock’s trailing-twelve-month returns are up 8.87%. Moreover, the stock is attracting bullish views from expert analysts. This April, Raymond James analyst Chris Caso upgraded Advanced Micro Devices, Inc. (NASDAQ:AMD) to Strong Buy from Outperform with a $160 price target. The analyst believes the company to be well-positioned amid cycle risks, and is confident regarding its position and share gains in the data center market.

Advanced Micro Devices, Inc. (NASDAQ:AMD) is experiencing bullish trading volumes and by the close of Q4 2021, 69 hedge funds held stakes in the company.

As of December 31, 2021, Fisher Asset Management is the dominating shareholder in Advanced Micro Devices, Inc. (NASDAQ:AMD) owning over 19.9 million shares. This amounts to a stake value of $2.87 billion.

Here is what Carillon Tower Advisers had to say about Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth-quarter 2021 investor letter:

“Advanced Micro Devices (AMD) supplies semiconductor chips for central processing units (CPUs) and graphic processing units (GPUs). The firm has been gaining share against its primary competitor in the datacenter server CPU space, as this rival has been unable to match the design and manufacturing capabilities of AMD and its partners. Investors are also looking forward to the closing of the previously announced merger with a semiconductor manufacturer that is another one of the portfolio’s holdings. The merger will increase AMD’s capabilities in the Field Programmable Gate Array (FPGA) chip space, and the combined company should possess the potential to win additional market share in the datacenter chip market.”

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