We recently compiled a list of 7 Most Profitable Gaming Stocks To Invest In. In this article, we will look at where NVIDIA Corporation (NASDAQ:NVDA) ranks among the most profitable gaming stocks to invest in.

Gaming Evolution: Key Trends Shaping the Market

The gaming industry is currently experiencing significant changes driven by technology and evolving consumer preferences. One of the most notable trends is the integration of artificial intelligence (AI), which is transforming game development and player experiences. AI is being used to create more realistic environments and enhance gameplay by adapting to individual player styles. Here’s a short excerpt from our previous article “7 Best Gaming Stocks To Buy Now” that discusses this in more detail:

“According to Bernard Marr, a world-renowned futurist and author of ‘Generative AI in Practice: 100+ Amazing Ways Generative Artificial Intelligence is Changing Business and Society’, generative AI is revolutionizing video game development by providing tools that enable developers to create engaging content, realistic visuals, and immersive gameplay experiences. Marr believes that generative AI can help developers create vast, unique game environments through procedural generation, allowing for dynamic gameplay experiences that change with each session.”

Another major trend in the gaming market is the rise of microtransactions, particularly in free-to-play games. This monetization model has become increasingly prevalent as developers look for sustainable revenue streams.

On March 24, CNBC reported that two of the largest video game companies in the US, Electronic Arts and Take-Two Interactive, are increasingly relying on live-service games, subscriptions, and in-game purchases for their revenue. Microtransactions, which allow players to buy virtual items or features within games using real money, have become a significant source of income. Popular titles like Fortnite, Call of Duty: Warzone, and Clash Royale utilize this model, where players pay for ongoing updates and seasonal content through subscriptions or battle passes.

Mat Piscatella, executive director of video games at Circana, noted that the industry has shifted towards a “battle pass” system, which packages seasonal content in a way that players find valuable. This approach has led to a more positive response from gamers, as they feel they receive consistent value for their money. The trend indicates that game publishers must continuously engage players with new content to maintain their interest in these live service games.

According to Comscore’s 2024 State of Gaming Report, around 82% of American gamers made in-game purchases in freemium games in 2023. The report also highlighted that 62% of adults over 18 participate in gaming activities, showcasing the widespread appeal of video games across various age groups.

Esports is becoming increasingly popular, especially among younger audiences. The report found that 86% of Gen Z and 80% of millennials watched esports last year. Additionally, 53% of Gen Z and 61% of millennials interacted with esports content, highlighting the increasing popularity of competitive gaming among these age groups.

Methodology

To compile our list of the 7 most profitable gaming stocks to invest in, we used the Finviz and Yahoo stock screeners to find the largest gaming companies. We also reviewed our own rankings, sifted through ETFs, and consulted various online resources.

Next, we focused on profitability. From this initial list of more than 20 gaming companies, we narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years.

To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income CAGR over the past five years, and YCharts, which offered information on TTM net income.

Finally, from this list of the most profitable stocks that met our criteria, we focused on the top 7 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 7 most profitable gaming stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.

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).

NVIDIA Corporation (NASDAQ:NVDA)

TTM Net Income: $53.01 Billion

5-Year Net Income CAGR: 80.81%

Number of Hedge Fund Holders: 179

NVIDIA Corporation (NASDAQ:NVDA) is a prominent American technology company that is also known for its role in the gaming industry, particularly through its powerful graphics processing units (GPUs). Since inventing the GPU in 1999, NVIDIA has transformed computer graphics and fueled the growth of PC gaming. The company’s GeForce line of GPUs is particularly popular among gamers, providing high-performance graphics for an immersive gaming experience.

Additionally, the company offers GeForce NOW, a cloud-based gaming service that allows players to stream games directly from the cloud to various devices, including laptops, desktops, and smartphones. This service enables gamers to access their game libraries on any supported device, making gaming more accessible and convenient.

NVIDIA Corporation (NASDAQ:NVDA) is playing a significant role in the booming artificial intelligence (AI) market. The company has seen massive growth in revenue, especially from its data center business, which has now become its primary source of income, surpassing the gaming segment that used to be the biggest. Despite this shift, NVIDIA remains one of the largest companies in the gaming industry.

The company is focusing on innovative strategies to strengthen its position in the gaming market. In the second quarter of fiscal 2025, NVIDIA Corporation (NASDAQ:NVDA) reported gaming revenue of $2.9 billion, reflecting a 9% increase from the previous quarter and a 16% rise from the same period last year. NVIDIA has introduced several exciting technologies, such as NVIDIA ACE, which uses generative AI to create lifelike digital characters and enhance player interactions. This technology allows game developers to build intelligent digital characters that can engage in realistic conversations, significantly improving the gaming experience.

Moreover, NVIDIA’s GeForce NOW service has surpassed 2,000 games and expanded into new markets like Japan. The launch of popular titles and partnerships with developers to integrate AI features further solidifies the company’s role in shaping the future of gaming. With these advancements and a strong revenue growth trajectory, NVIDIA Corporation (NASDAQ:NVDA) is well-positioned to capitalize on the growing demand for innovative gaming experiences.

NVIDIA Corporation (NASDAQ:NVDA) has managed to grow its top line at a compound annual growth rate (CAGR) of 56.73% over the past five years, while its bottom line has increased at a CAGR of 80.81% during the same period. Over the past 5 years, the company has also grown its levered free cash flow at a CAGR of 84.47%.

According to Insider Monkey’s database, 179 hedge funds held stakes in NVIDIA Corporation (NASDAQ:NVDA) in the second quarter of 2024. This brings NVDA to the 2nd spot on our list of the most profitable gaming stocks to invest in.

Overall NVDA ranks 2nd on our list of the most profitable gaming stocks to invest in. While we acknowledge the potential of NVDA 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 time frame. If you are looking for an AI stock that is more promising than NVDA 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 on Insider Monkey.