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 Take-Two Interactive (NASDAQ:TTWO) 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 hand holding a game controller, demonstrating the interactive entertainment of the company.
Take-Two Interactive (NASDAQ:TTWO)
Number of Hedge Fund Investors: 48
Take-Two Interactive (NASDAQ:TTWO) is a leading American video game company known for publishing popular titles like Grand Theft Auto, Red Dead Redemption, and NBA 2K. The company operates through two key labels: Rockstar Games and 2K Games.
As the video game business model has evolved over the years, Take-Two Interactive (NASDAQ:TTWO) has successfully adapted to these changes. The company has developed a proven business model that relies on franchise titles and microtransactions to generate revenue. Take-Two Interactive’s (NASDAQ:TTWO) focus on high-quality storytelling, and immersive gameplay has made it a favourite among gamers. The company also offers live gameplay, which offers recurring revenue through in-game purchases and downloadable content. The rising cost of developing AAA games is a concern. However, Take-Two Interactive (NASDAQ:TTWO) has offset this cost by relying on its franchise titles and microtransactions.
Take-Two Interactive (NASDAQ:TTWO) has a proven business model and valuable intellectual properties, the company’s Grand Theft Auto 6 (GTA 6) is expected to release in 2026 and the company has forecast $8 billion in revenue and $1 billion in operating cash flow for FY2026.
Industry analysts have a consensus for stock’s Buy rating, with a median price target of $180.55, suggesting a potential upside of almost 16.48% from current levels. As of the second quarter 48 hedge funds own stakes in the company valued at $2.36 billion. According to Insider Monkey’s hedgefund database. Tiger Global Management LLCis the largest shareholder, with stakes worth $877.51 million.
Overall TTWO ranks 2nd on our list of best video game stocks to invest in. While we acknowledge the potential of TTWO 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 TTWO 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.
