The video game industry is on track to rake in almost $176 billion in sales this year, and it's forecast to surpass $200 billion in total sales by 2023. But this business is far different than it used to be. Games and gaming platforms are becoming the new social networks for younger people. Amazon's popular live game-streaming platform, Twitch, just broke viewership records for its third quarter in a row. It all spells opportunity for investors.
There are more ways to invest in this sector besides buying the companies that produce the actual games. With that in mind, here's why Nvidia (NVDA -10.01%), Corsair Gaming (CRSR -0.37%), and Electronic Arts (EA 1.30%) should generate solid returns for their shareholders over the next decade.
Nvidia GeForce RTX 3050 gaming laptop. Image source: Nvidia.
1. Nvidia
Nvidia has been enormously successful in expanding the market for its core graphics processing technology into non-gaming applications such as data centers and cryptocurrency mining. However, the gaming market is still its most important, providing 48% of total revenue over the last four quarters.
In the second quarter, Nvidia's share of the discrete graphics card market rose slightly to 80%, where it has dominated the add-in board market over the last 15 years. Its gaming segment reported robust revenue growth of 85% year over year, driven by surging demand for gaming laptops. These results show that players continue to upgrade their graphics cards to keep their PCs up to spec to handle the latest titles. And more releases are supporting Nvidia's RTX ray tracing technology, which bodes well for further upgrades over the next few years.
While graphics card sales can ebb and flow in cycles, ongoing advancements in graphics technology should spur growth in Nvidia's gaming segment over time. Specifically, Nvidia should continue to benefit from the rising popularity of competitive online gaming -- aka, esports. It's also a leader in cloud gaming with its GeForce NOW service. Since the company will also benefit from non-gaming tailwinds such as the growth of the data center market, Nvidia is a great tech stock to own for the long term.
Image source: Getty Images.
2. Corsair Gaming
Corsair Gaming is one of the leading makers of gaming peripherals. It also sells system components that gamers can use to build or upgrade their gaming PCs, including power supply units and memory chips. The strong demand for graphics cards often carries over into these types of components, which has driven explosive growth for Corsair over the last few years. For 2021, Corsair is on pace to reach approximately $2 billion in revenue, which would be nearly double its 2019 sales.
The gaming hardware market is estimated to be worth $36 billion, so there is plenty of room for Corsair to grow, especially as it expands into new product categories. In addition to selling gaming headsets, mice, and keyboards, it has experienced strong demand for streaming products such as cameras lately. An estimated 728 million people around the world spend some of their leisure time watching other people play video games online. This is encouraging more gamers to start streaming too, which helped fuel a 41% year-over-year sales increase for Corsair's gamer and creator peripherals segment last quarter.
The company's primary competitor in the U.S. is Logitech International, but Corsair focuses on the premium end of the market, which gives both companies some breathing room. Moreover, Corsair trades at a compelling valuation of 14.9 times 2021's earnings estimates. Given the secular trends that are propelling growing demand for gaming peripherals, Corsair's stock is a steal at these levels.
Image source: Electronic Arts.
3. Electronic Arts
EA is one of the leading producers of video games across all platforms. In addition to popular titles like Battlefield, Apex Legends, and The Sims, the annual releases from the EA Sports label (Madden and FIFA) provide it with steady streams of free cash flow. Last year, EA initiated its first quarterly dividend, and prospects for further expansion within its sports portfolio should lead to more rewards for shareholders.
Earlier this year, EA announced a long-term initiative to expand its sports lineup with six new mobile experiences, and made plans to launch FIFA Online 4 in more countries following its recent successes in Asia. EA is also bringing back its college football franchise.
In November, the latest installment in EA's Battlefield series, Battlefield 2042 will debut on the new Xbox and PlayStation consoles, which should provide a near-term catalyst for growth. Looking further out, management's strategy to expand the audience for its EA Sports titles to 500 million over the next five years could deliver big returns for investors.
