The Ups And Downs Of Investing In Gaming Stocks

It’s long been a belief that anyone looking to put together a well-balanced investment portfolio should include some technology stock.

In an era when new breakthroughs are being made virtually on a monthly basis, the fortunes of companies in the tech sector can see their stock values change just as quickly. And, for the savvy investor, this offers some very appealing opportunities.

Of course, the breadth of the sector is huge so it can be hard to home in on one particular field. But it can certainly be a good idea to take a look at gaming for one that undoubtedly offers great potential. After all, it does form a considerable segment of the entertainment and media sector that PwC estimate will be worth $2.9 trillion by the end of 2026

 

Types of gaming companies to choose from

Within the gaming sector, this splits down into a number of different categories of business, offering the potential for a chance of wide diversification for the investor.

• Design companies and studios are the ones that are behind the actual creation of the games themselves.
• Software companies create the programs that can convert the concepts that the design companies generate into actual, playable games.
• Hardware companies make the consoles and other devices on which the games are played and enjoyed by the estimated 3.09 billion gamers across the world.
• Last, but not least, there are publishing and distribution companies who get the games out to the players as well as looking after the rights and other features of the games for their creators.

 

So what can affect stock prices for gaming companies?

As with all stock, wider economic conditions will always have an influence on the stock market value of gaming companies. However, it can be argued that gaming may be slightly more protected from these than other entertainment sectors. This is because, unlike cinema or theatre-going, for example, gaming is generally an activity enjoyed at home.

So even when people are cutting back on other expenditure, it’s often seen as a low-cost form of entertainment when money is scarce. In more favourable economic conditions, players may also “treat” themselves to more games and hardware than they would usually buy.

For the games companies themselves, one thing that can help to drive up their stock value is the arrival of a new game. Even the announcement of a game in production can have a very positive effect, as was demonstrated when Rockstar Games released news of a new version of Grand Theft Auto in the works.

In the highly competitive world of gaming size is important and this means that many mergers take place each year. This can also have a very positive effect on stock prices almost as soon as the announcement is made. More speculative investors can even start to react when they start to hear rumour of a merger or an acquisition that’s on the way.

In the wider gaming sector, the world of online casinos has also seen many takeovers in the past few years including in the very successful and popular field of poker leading to the creation of a number of mega brands. The sheer size of these does tend to make them very sound mid- to long-term investments.

While these are examples of the positive effects that outside influences can have on stock prices, there are also some negatives to be aware about.

One of these is when a company in question is involved in some kind of controversy. This was amply demonstrated by the events surrounding the departure of Activision Blizzard’s (ATVI) Presidents J. Allen Brack following allegations of a corporate culture of bullying and other harassment of staff.

Not only did this lead to Brack’s unseating, it also saw a 3% fall in the stock price as soon as it was announced. That this happened to a company responsible for such well-known titles as Call of Duty, World of Warcraft and the Candy Crush Saga just shows that no organisation is immune.

 

Exciting opportunities to consider

On a more positive note, there are a few gaming stocks that some observers are currently tipping for future growth. These are generally looking ahead to the next step in gaming’s journey and include Roblox (RBLX), a business that is developing 3D technology as well as rapidly growing its customer base.  

Similarly, NVIDIA (NVDA) is a company that focuses on building top quality graphic processing units. It has shown consistent growth since its inception in 2015 and is now focusing on supporting both virtual reality and AI, two of the hottest fields in gaming at the moment.

So, as you can see, there is great potential for the investor in gaming stocks at the moment. And, with technology continuing to develop at such a rapid pace for the sector, the future looks very exciting too.