Revenue for the video games market is projected to hit $385 billion this year and continue expanding at a compound annual rate of 8% through 2027, according to the forecasters at Statista. While its growth may not be as significant as other tech markets like artificial intelligence (AI) or cloud computing, there's a never-ending supply of new video games, and the market for them has grown consistently over the long term. It's this characteristic of the market that has prompted many of the world's most valuable companies to enter the space.
Adding a video gaming stock to your holdings can be an excellent way to instill stability in your portfolio, and there's no better time than the present to do so. Here are three smart gaming stocks to buy in June.
1. Advanced Micro Devices
Most of today's most popular video games require powerful chips to play and develop. As a result, chipmakers like Advanced Micro Devices (AMD 2.44%) offer an excellent way to invest in the growth of the space.
AMD is a particularly attractive video game stock as it is the exclusive supplier of chips for Sony's PlayStation 5 and Microsoft's (MSFT 1.65%) Xbox Series X|S consoles. The semiconductor company's hardware provides the processing and graphics power necessary to run the latest games.
Those partnerships and the popularity of the consoles provided AMD with a consistent revenue stream that proved particularly helpful to it as the market for personal computers (PCs) declined last year. While many areas of consumer tech experienced a reduction in spending, AMD reported a 21% rise in gaming segment revenue in 2022. The company attributed that increase primarily to the high demand for game consoles.
As a chip manufacturer, AMD supplies its hardware to a wide variety of tech areas. The company's diversification allows investors to benefit not only from gaming growth but also from the performance of high-powered sectors like cloud computing, AI, and consumer PC components.
After recording share price growth of 806% over the last five years, AMD is a gaming stock worth considering this month.
2. Nvidia
Like AMD, Nvidia's (NVDA 3.65%) chips have earned it a solid position in the video game industry. It first made a name for itself by being one of the first to make graphics processing units (GPUs) available to the consumer market. The chips were a hit and bolstered the gaming PC market as more and more gamers opted to build custom gaming computers.
Today, Nvidia boasts an 88% market share in the consumer GPU market, primarily thanks to its success with gamers. Steep rises in inflation last year contributed to significant declines in the PC market and made Nvidia's dominance in that segment a temporary liability. However, as the inflation rate eases, PC component sales will likely recover.
And Nvidia's participation in gaming doesn't stop at PC chips. Just as AMD supplies the processing power for Sony and Microsoft's consoles, Nvidia has a relationship with Nintendo, providing the chips for its Switch. The Nintendo Switch has sold 126 million units since its launch in 2017, making it the third best-selling console ever.
The Japanese company is expected to debut the successor to the Switch sometime in the next two years. If Nvidia retains its position as Nintendo's chip supplier, it could be in for a healthy boost to earnings.
Nvidia's price/earnings-to-growth ratio of 0.2 strengthens the argument for its stock, as the figure suggests that projected growth is not yet priced into its shares. And that adds to the argument that Nvidia is a games company worth investing in this month.
3. Microsoft
Thanks to the success of its Xbox consoles and its Xbox Game Pass subscription service, Microsoft is currently the fourth-largest games company by revenue after Tencent, Sony, and Apple. However, if its planned acquisition of game developer Activision Blizzard gets over the antitrust hurdles, it will reportedly move into third place on the list.
That $69 billion deal has been held up by regulatory pushback worldwide. The concern among regulators is that it could grant Microsoft too much control over the market, particularly the cloud gaming segment. Activision's biggest asset is the Call of Duty franchise, one of the most profitable gaming series in history. As a result, there has been concern that if Microsoft made that franchise and other Activision Blizzard titles exclusive to its consoles and services, that would excessively suppress its competitors.
In response, Microsoft has agreed that it won't make Call of Duty an exclusive game, which seems to have eased some regulators' unease -- the European Commission approved the purchase on May 15. That was a massive win for the deal, and could prompt antitrust regulators in many other countries to follow suit.
But for now, the fate of the deal is still unclear, making June an excellent time to consider investing in Microsoft before its shares get the boost they'd likely see if the purchase of Activision Blizzard is given the go-ahead.
