TTWO - 3 Gaming Stocks to Buy for the Next Generation of Entertainment

2024-03-15 13:19:12 ET

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The video game industry is not one to sleep on, especially as more people pick up controllers in favor of other forms of at-home entertainment (think video streaming, reading and browsing social media).

Indeed, the industry has come a long way in recent years, with impressive graphics getting pretty close to photo-realistic!

Add the potential of emerging tech trends (generative AI and virtual reality) into the equation, and I expect gaming could take even more share away from other forms of entertainment over the next 10 years.

Undoubtedly, mass layoffs have hit the gaming industry and the broad tech scene as a whole. Though such corporate cuts aren’t great news for prospective gamers, emerging monetization trends (think microtransactions) have the potential to jolt video-gaming stocks as they compete with some of the Magnificent Seven members, most notably Microsoft (NASDAQ: MSFT ), seeking exposure.

Microsoft (MSFT)

First up, we have Microsoft, the Magnificent Seven member that’s been leading the charge on AI innovation. Recently, the company unleashed the premium version of its AI assistant Copilot Pro, a $20 monthly subscription plan, to the world.

Undoubtedly, Copilot’s free version is very capable. That said, it will be interesting to see how global audiences react to the new premium AI service. My guess is it could hit the mark as Microsoft continues innovating organically on AI, acquiring AI startups and integrating Copilot alongside more things in its ecosystem.

Moving ahead, Microsoft may also advance the field of AI with its Xbox gaming division. Late last year, the enterprise cloud giant announced a partnership with Inworld AI , a firm that uses generative AI in game development.

Indeed, Microsoft is heavily investing in AI innovation. Gaming is just another part of the Microsoft ecosystem that stands to benefit greatly from incorporating next-gen AI tech.

Take-Two Interactive ( TTWO )

Take-Two Interactive (NASDAQ: TTWO ) is arguably the most exciting video game stock as gamers await the next Grand Theft Auto (GTA 6) title, due in 2025. It’s going to be a long wait, but investors with patience may have a chance to get a slightly better price of admission into the name following its latest 16% tumble off 52-week highs.

What was behind the correction? A notable earnings miss. But those overly concentrating on the recent past may be missing out on the big picture and the potentially bright road ahead as the company’s ambitious project, GTA 6, looks to hit the ground running.

The company has also been trimming expenses with its cost-reduction program while “investing for growth.” With growth and margins having the potential to look upward, I find the stock to be quite cheap here on this pullback at 24 times forward price-to-earnings.

Further, I still believe investors are underestimating just how significant GTA 6’s longer-lasting contributions will be, as it’s not a game you play to the finish and put down.

Roblox ( RBLX )

Roblox (NASDAQ: RBLX ) stock has been struggling to rebound for about two years now after crashing off its 2021 all-time high. The game platform, which has an impressive user-generated content ecosystem, could accelerate as Roblox’s generative AI tools improve and become more intuitive to use.

Just over a month ago, a notable bear, Goldman Sachs (NYSE: GS ) analyst Eric Sheridan, turned neutral on the stock, citing improving margins and fundamentals. I couldn’t agree more. Roblox is on the right track, and if shares were to rebound, it’d likely be due to new generative AI tech.

Perhaps the biggest reason to own Roblox, though, is because it was a metaverse play before the metaverse was even a thing. As the company looks to AI as a growth lever, with numerous innovations showcased at the latest Roblox Developer Conference (RDC 2023), a bearish stance definitely doesn’t seem advisable.

On the date of publication, Joey Frenette owned shares of Microsoft. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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