The video games market is expected to hit a value of $385 billion in 2023 and continue expanding at a compound annual growth rate of 8% through 2027, according to Statista. The segment's consistent growth has attracted some of the biggest names in tech, drawn by reliable demand from consumers.
As a result, adding a gaming stock to your portfolio can be a lucrative way to keep it growing over the long term. With inflation continuing to ease, now is a great time to invest in the high-profit market.
Here are three top gaming stocks to buy in May.
1. Microsoft
As one of the biggest names in gaming, it's hard to go wrong with Microsoft (MSFT 1.82%). The company launched its Xbox gaming brand in 2001 with its first console, and has gone on to acquire multiple high-profile studios and become the No. 1 name in game subscriptions. Its Xbox Game Pass service, which allows access to a wide variety of games for a low monthly fee, grew subscriptions by 150% from 2020 to 2022.
The company's gaming segment has been hurt by market declines over the last year, with revenue falling 3.5% year over year in the third quarter of 2023. However, the great thing about Microsoft is its thoroughly diverse business, allowing it to lean on other segments amid short-term headwinds. As a result, you can confidently invest in Microsoft now and reap the rewards once economic challenges improve.
Moreover, 46 of 50 analysts currently hold a buy/strong buy rating on Microsoft, with the majority expecting significant gains down the road. Alongside stock growth of 307% over the last five years alone, Microsoft is a no-brainer way to invest in the video games market this month.
2. Advanced Micro Devices
This company got its start in gaming by becoming a leading vendor of computer components, supplying its hardware to PC gamers worldwide. However, Advanced Micro Devices (AMD 2.37%) has vastly expanded since then, with its chips now crucial to the production of multiple game consoles.
AMD is the exclusive supplier of graphics/processing chips to Microsoft's Xbox Series X|S, Sony's PlayStation 5, and several handheld gaming devices. These lucrative partnerships boosted AMD's gaming segment in fiscal 2022, with revenue climbing 21% to $6.8 billion. The growth is impressive, considering the segment was burdened by PC market declines, which reduced sales of its graphics processing units (GPUs).
Moreover, May is a compelling time to pick up this stock, as the company's forward price/earnings-to-growth ratio sits at 0.1. The metric suggests projected growth is not currently priced into AMD's stock, making it a bargain buy.
3. Warner Bros. Discovery
While Warner Bros. Discovery (WBD -2.17%) is best known for its film and TV offerings, it has an increasingly successful game development business.
In the past, the entertainment company produced successful titles such as Mortal Kombat, Batman: Arkham City, and dozens of popular LEGO games. However, Warner Bros. Discovery delivered a smash hit this year with the release of the Harry Potter-themed game Hogwarts Legacy in February, which could be a positive sign of things to come.
The fantasy title earned $850 million, selling more than 12 million units in its first two weeks on the market. Meanwhile, it seems to have triggered renewed interest in the Harry Potter franchise, with online engagement for the site Wizarding World Digital up 300% the month the game launched. The massive success could lead to a long line of similar games that expand the Harry Potter universe or tap into other WBD franchises such as Game of Thrones or The Lord of the Rings.
Next year, the company plans to release its DC-centered game, Suicide Squad: Kill the Justice League, with a new Wonder Woman title also in the works and a recently announced Harry Potter: Quidditch Champions on the way. Warner Bros. Discovery has hit its stride in gaming by utilizing its valuable franchises, making its stock an attractive option.
The company has a mountain to climb to bring its video streaming business to profitability, which dragged down its shares substantially. However, its average 12-month price target of $21 projects a 61% stock rise, making Warner Bros. Discovery a screaming buy this May.
