The video games market is vast, encompassing a wide range from consoles to PCs, mobile games, handheld devices, and more. Meanwhile, recent developments like microtransactions and subscription-based services have opened new ways for companies to boost revenue.
According to Statista, the industry is valued at about $250 billion, and is expected to expand at a compound annual growth rate of about 9% through 2028. As a result, it's not a bad idea to make a long-term investment in the market and profit from its consistent development.
After all, there's a reason many of the world's most valuable companies, including Microsoft (MSFT +0.60%), Nvidia, and Apple, ventured into the lucrative arena. No matter the economic climate, there is almost always demand for new gaming content and hardware upgrades, offering companies and their investors reliable gains over the long term.
Here are three top gaming stocks to buy in January.
1. Advanced Micro Devices
Shares of Advanced Micro Devices (AMD +0.05%) are up 127% over the last 12 months as the company impressed Wall Street with its artificial intelligence (AI) efforts. However, long before the company's venture into AI, AMD was a crucial fixture in the gaming community.
The tech giant's computing hardware, including graphics processing units (GPUs) and central processing units (CPUs), is used by gamers worldwide to build high-powered gaming PCs. AMD's chips allow consumers to play demanding titles at far higher settings than possible on consoles.
NASDAQ: AMD
Key Data Points
However, that hasn't stopped the company from also carving out a lucrative role in the console market. AMD is the exclusive supplier of chips to Sony's PlayStation 5 and Microsoft's Xbox Series X|S, two of the best-selling consoles of the last few years.
AMD's success in video gaming pushed revenue in its gaming segment rise 30% to $1.5 billion over the last five years, with operating income up 72% to $208 million.
Data by YCharts
AMD looks too expensive with a forward price-to-earnings ratio (P/E) of 55. However, this table shows AMD's earnings could hit $5 per share by fiscal 2025. Multiplying that figure by the company's forward P/E gives a stock price of $275, projecting growth of 87% over the next two fiscal years.
And with that, AMD is an attractive way to invest in gaming this month.
2. Microsoft
As the home of the Xbox, Microsoft is one of the biggest names in video games. The company launched the brand with its first console in 2001, debuting as an underdog in an industry long dominated by Japanese firms Sony and Nintendo.
However, Microsoft played to its strengths, using its skills in software to approach the market in a unique way. The tech giant was one of the first to launch a video game subscription service with Xbox Game Pass, which landed on the scene in 2017 and has been described as the Netflix for games. Game Pass made Xbox the best-valued console available, allowing gamers to pay one low monthly fee for access to an extensive library of new and old titles rather than paying for games individually.
NASDAQ: MSFT
Key Data Points
From 2020 to 2022, the number of Game Pass members rose 150% to 25 million. The platform's success has occurred as Microsoft acquired several game developers to boost content on the service, including purchasing Activision Blizzard (creators of Call of Duty) in 2023.
Microsoft's forward P/E of 33 makes its stock a pricey option. However, as a behemoth in the video games industry, and free cash flow that hit $63 billion in 2023, the company has earned its premium price and is an attractive way to invest in video games this month.
3. Intel
Intel (INTC +0.00%) might not be the first company that comes to mind in a discussion about gaming. However, like AMD, the chipmaker's CPUs have been heartily adopted by the video game community to run powerful gaming PCs.
NASDAQ: INTC
Key Data Points
Additionally, in 2022, Intel took steps to diversify its position in gaming with the launch of its first consumer GPUs. Their debut had unfortunate timing, as macroeconomic headwinds had brought down the entire market. However, easing inflation last year suggests gaming GPU demand might be trending up again.
In the third quarter of 2023, Intel's client computing segment (which includes gaming income) posted operating income growth of 43% to $2 billion. The company is on a promising growth trajectory, with excellent prospects in video games over the long term.
Data by YCharts
This chart shows Intel's earnings are projected to reach almost $3 per share over the next two fiscal years. In a similar calculation to AMD, multiplying the figure by Intel's forward P/E of 53 yields a stock price of $140. Considering the company's current position, its shares are projected to deliver growth of 180% by fiscal 2025.
Intel could be one of the smartest ways to invest in video games this January.
