We recently published a list of 6 Best Video Game Stocks To Invest In. In this article, we are going to take a look at where Electronic Arts (NASDAQ:EA) stands against the other best video game stocks to invest in.
Video Gaming Market
According to a report by Precedence Research, the global video games market was valued at $248.52 billion in 2023 and is expected to grow to $664.96 billion by 2033, at a CAGR of 10.32%. The market is driven by the increasing adoption of Augmented Reality (AR) and Virtual Reality (VR) technologies, which provide immersive gaming experiences.
The Asia Pacific region held a revenue share of 54.14% in 2023, driven by the region’s large population, rising disposable incomes, and increasing urbanization. North America held a share of 22.43% in 2023, driven by the presence of leading console manufacturers such as Microsoft and Sony. The region is home to some of the world’s largest and most influential gaming companies, contributing to the industry’s growth.
The market is driven by the increasing adoption of cloud gaming, the introduction of VR and AR technologies, and the growing popularity of online gaming. However, the growing complexity of game development, the increasing costs, and the need for specialized skills and expertise required to develop immersive experiences are restraining the market’s growth.
Gaming Industry Struggles to Secure Investment
According to Spike Laurie, Partner at VC Hiro Capital, the gaming industry is facing a funding crisis, with investors becoming increasingly cautious about backing new projects. The bar is extremely high right now, and merely having a great game idea and a talented team is no longer sufficient to secure investment. Laurie explains that the current economic situation is tough, with interest rates rising and people’s disposable income taking a hit.
Eliana Oikawa, CEO of Wings, an investment company that finances independent game developers, agrees that the fundraising market is tight, and investors are worried about the risk of not being able to raise further rounds. Many funds are sitting on the sidelines, and the collective caution has become self-fulfilling. We’re being very selective about what we’re backing, and we’re looking for companies that have a unique value proposition and a clear path to profitability.
Patrick O’Donnell, Video Gaming Analyst at Goodbody Equity Research, notes that the current situation in the game industry is very challenging. O’Donnell explains that there is a lot of competition, and it’s harder for new games to break through. We’re looking for companies that have a clear entrepreneurial approach and the ability to validate from users or the market early and often. The industry needs to focus on business essentials and make more money than it needs to spend.
The global video games market is poised for significant growth, driven by the increasing adoption of AR and VR technologies, cloud gaming, and online gaming. However, the gaming industry is facing a funding crisis, with investors becoming increasingly cautious about backing new projects.
Our Methodology
For this article, we sifted through ETFs and online rankings to compile an initial list of 15 video game stocks. From that list, we shortlisted the stocks that were the most widely held by hedge funds, as of Q2 2024. The hedge fund sentiment was sourced from our database of 912 elite hedge funds.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close up of a consumer enjoying the company’s games on their mobile device.
Electronic Arts (NASDAQ:EA)
Number of Hedge Fund Investors: 40
Electronic Arts (NASDAQ:EA) is one of the world’s largest video game companies known for developing hit franchises like FIFA, Madden NFL, and The Sims. The company operates across various gaming platforms, including consoles, mobile devices, and PCs.
Electronic Arts (NASDAQ:EA) leverages microtransactions and subscriptions to enhance user monetization. In its Investors Day, management outlined several operational highlights, including its plans to double its total audience to over a billion people in the next five years, with Sims being a key element of this. Additionally, the company’s adoption of AI is expected to be financially accretive.
The company’s Investor Day also highlighted its progress in developing a Sims movie, which is expected to significantly contribute to its ecosystem. The Sims culture is being kept alive, and Electronic Arts (NASDAQ:EA) is exploring new ways to expand its reach, including a potential partnership with Margot Robbie’s production company. Furthermore, the company’s business is expected to benefit from the growing demand for sports video games, with a socially driven experience being developed with its new EA Sports App. This aligns with the company’s trend to bridge out of pure video gaming and into a broader focus on entertainment, which analysts believe is headed toward community development to create network effects and support its financial growth.
According to a report by Fortune Business Insights, the global esports market size was valued at $2.06 billion in 2024 and is projected to grow to $9.29 billion by 2032, exhibiting a CAGR of 20.7%. Electronic Arts (NASDAQ:EA) is poised for significant growth and expansion, driven by its strategic plans, leveraging AI technology, and capitalizing on the rising demand for sports video games, which solidify its position as a leader in the market and makes it an attractive investment opportunity
Analysts forecast the company to grow its earnings by 9.75% this year and have a consensus for the stock’s Buy rating, with a median price target of $159.24, suggesting a potential upside of almost 9.6% from current levels. As of the second quarter, Electronic Arts’ (NASDAQ:EA) stock is held by 40 hedge funds for stakes worth $819.77 million. According to Insider Monkey, D E Shaw is the largest shareholder in the company and owns stocks worth $193.72 million.
Overall EA ranks 3rd on our list of best video game stocks to invest in. While we acknowledge the potential of EA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EA but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
