The video game market has been one of the most reliable growth areas in tech for decades. Consistent consumer interest and demand for new games keep the industry expanding over the long term. Data from Omdia shows the sector was valued at $236 billion in 2022 and is projected to grow by 36% and hit $321 billion in 2026. So it could be worth adding a gaming stock to your portfolio to profit from the market’s consistent rise.
While titans of the industry like Microsoft and Sony might look like the obvious choices, some smaller players are also profiting massively from their gaming businesses. Here are two under-the-radar gaming stocks you can buy and hold for the next decade.
Apple (NASDAQ: AAPL) isn’t usually the first company to come to mind in a discussion about gaming. However, the company is the world’s third-largest video game company, just after Tencent and Sony, because of the success of its App Store. The company charges a 30% fee for apps and in-app purchases, which allows it to significantly profit from mobile games and microtransactions.
Games are by far the most popular category of apps on the App Store, making up about 13% of all applications available (per Statista). For reference, business and education are the second- and third-largest categories, with each hovering around 10%.
Apple announced in May that the App Store generated $1 trillion in billings and sales in 2022, most of which went to developers. However, the platform is an increasingly lucrative business for Apple as well. The tech giant’s services segment, which includes income from the App Store, has quickly become its second-highest-earning segment after the iPhone, and is outpacing the smartphone’s growth. Services revenue rose 14% year over year in fiscal 2022 — double the growth of the iPhone.
Then, in the third quarter of 2023, macroeconomic headwinds caused iPhone revenue to slip 4%. Meanwhile, services revenue increased by 7% year over year. The digital business has diversified and strengthened Apple’s business even during uncertain times.
Apple is mainly profiting from mobile games for now. However, the 2024 launch of its first virtual/augmented reality headset could become a new avenue for the company to expand in video games.
Nvidia (NASDAQ: NVDA) has captured Wall Street’s attention this year by climbing to the top of artificial intelligence (AI). The company has become the primary supplier of graphics processing units (GPUs) to many companies venturing into AI. However, before this year, Nvidia was best known for its dominance in the PC gaming market.
The company almost singlehandedly grew the consumer GPU market to what it is today by convincing gamers to build custom PCs and play titles at much higher settings than is possible on a console. Nvidia’s gaming segment was the highest earning part of its business for years, driving its revenue to rise from $5 billion to $17 billion between 2015 and 2021. Economic hurdles and the rise in AI have allowed data centers to surpass Nvidia’s gaming segment. However, it remains a lucrative business once the PC market bounces back.
In addition to PC gaming, Nvidia has a solid role in consoles as the primary provider of chips for the Nintendo Switch. The hybrid gaming machine is the third-best-selling console of all time, reaching 129 million units sold since its launch. Rumors have swirled that a sequel to the Switch might launch as early as 2024, which would provide Nvidia with a nice boost to revenue if it retains its position as the console’s chip supplier.
While Nvidia is an AI-first company now, it owes much of its past success to gaming and doesn’t appear to be slowing down in the market any time soon. Once economic challenges improve and PC market spending recovers, the company could be home to a lucrative AI business and a solid revenue stream from gaming. As a result, Nvidia is an attractive gaming stock right now that could provide major gains over the long term.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Tencent. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.
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