The video games market is expected to reach a value of $372 billion in 2023 and $502 billion by 2027, according to a study by Statista. That suggests a compound annual growth rate of 7.8%. Given that rosy outlook, now would seem to be a great time to take advantage and add a strong gaming stock to your portfolio.
Advanced Micro Devices (AMD 1.33%) and Corsair Gaming (CRSR 1.74%) might not be the first stocks that come to mind when looking into the gaming industry, which is dominated by behemoths like Microsoft and Sony. However, these smaller companies can make compelling investments because they have advantages on specific aspects of gaming. Investors seem to have noticed this as both stocks are trading up by more than 35% year to date.
But if you could only buy into one of these two gaming stocks, is AMD or Corsair the better buy? Let's assess.
Advanced Micro Devices: Powering the world's biggest consoles
AMD is best known for its contributions to PC gaming, and it offers gamers powerful hardware components like its various models of graphics processing units (GPUs) and its Ryzen central processing units (CPUs). This part of AMD's business suffered in 2022 as steep inflation led consumers to pull back on building custom gaming PCs. According to Jon Peddie Research, GPU shipments fell 42% in 2022.
AMD also has a lesser-known role in gaming through consoles. Since 2020, AMD has been the exclusive supplier of the graphics and processing power in Sony's PlayStation 5 and Microsoft's Xbox Series X|S through its system on a chip (SoC) components. These game consoles have been immensely popular, with the PlayStation 5 selling 32 million units since it first launched in November 2020 -- 7.1 million sold in the last three months of 2022. Meanwhile, the Xbox Series X|S had sold 18.5 million units as of the end of 2022. AMD's partnerships with Sony and Microsoft allowed it to build an 83% market share in game console processors, according to research from IDC.
Moreover, the success of Sony's and Microsoft's consoles was the main driver of growth in AMD's gaming segment in 2022, with revenue rising 21% to $6.8 billion. Comparatively, AMD's biggest competitor, Nvidia, saw its gaming revenue decline 27% in its fiscal year because of the segment's reliance on GPU sales, even while the company supplies an SoC for the Nintendo Switch.
AMD has a solid position in gaming thanks to its chip business. As Microsoft and Sony are expected to release upgraded versions of their consoles within the next two years, AMD will likely continue profiting from these lucrative partnerships.
Corsair: A leading name in PC accessories
In 2022, Corsair's stock price fell 35% as its business is largely dependent on the PC gaming industry, which (as noted) had a rough 2022. Corsair is best known for premium gaming PC accessories such as keyboards, mice, headsets, cases, and computer cooling fans. In the first quarter of 2022, revenue fell 28% year over year to $381 million, missing Wall Street expectations by $9.1 million as the company was hit hard by market headwinds.
The challenges continued throughout 2022 but showed some improvement by the end of the year. Revenue was still down nearly 22% year over year in Q4, but its $399 million in revenue beat analysts' consensus forecast for the period by $20.2 million. CEO Andy Paul attributed the improvement to holiday sales and "an uptick in demand in the Gaming PC market fueled by new GPU and CPU launches from Nvidia, AMD, and Intel at the end of 2022, with more expected to roll out in Q1 2023."
Corsair is the No. 1 name in PC gaming accessories and components other than chips. The company has benefited considerably from the growth in the number of consumers building custom PCs over the years, offering a wide range of products to enhance their setups. Corsair is a relatively new stock -- it went public in September 2020. As a result, it likely has a lot of growth ahead over the long term as economic challenges subside.
Which stock is the better buy right now?
While Corsair is an attractive investment, AMD is the better and more reliable gaming stock for now. Its strong positions in both PC and console gaming provide it with revenue diversification. Additionally, AMD's business does not solely rest on the gaming market, as it also boasts booming segments in data center hardware and embedded products. Meanwhile, Corsair's dependence on the PC market makes its business vulnerable to further declines, with its success contingent on one industry's recovery.
AMD's and Corsair's price-to-earnings ratios, a metric that estimates the value of a stock, are fairly close. AMD's is at 31.67, while Corsair's is at 30.92. Neither valuation is incredibly attractive, as both are a bit high. That's why noting potential growth and reliability is key. AMD's participation in a variety of markets strengthens its outlook over Corsair's and it better justifies the premium valuation.
In addition to diversification, AMD's free cash flow of $3.1 billion compared to Corsair's $40 million as of Dec. 30 suggests the semiconductor company is better equipped to manage potential headwinds, should they come.
All these factors taken together suggest AMD is the better gaming stock right now.
