Shares of video game engine developer Unity Software (U 1.50%) have been sent through the wringer over the past two weeks. In late January, the stock crashed after Alphabet unveiled Project Genie, an AI-powered tech demo that lets users create virtual worlds from text prompts. Then, earlier this week, Unity stock crashed again after the company's outlook fell short of expectations.
Project Genie is impressive, and Unity stock was severely punished partly because investors have grown concerned that AI world generators could make video game engines obsolete. While AI could disrupt many industries, this fear appears misguided.
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Is AI a threat to Unity's business model?
Project Genie can take a text or image prompt and generate a world that the user can navigate for up to 60 seconds. It's incredible, but there are severe limitations. Resolution and frame rates are limited, input lag is a problem, and the generated world may not remain consistent. An article from The Verge noted that, at one point, a section of road unexpectedly turned into grass, along with other visual oddities.
AI technology will certainly improve, but what Project Genie is producing certainly isn't a game. Unity CEO Matthew Bromberg didn't mince words in the fourth-quarter earnings call. "We believe world models are going to be a source of inspiration and assets for creators, but that they're not in any way going to replace game engines. They are complementary, not duplicative," said Bromberg.
Bromberg continued, saying that "Unity is not an interactive video generator; it's a real-time 3D execution platform designed to build once and then run everywhere efficiently and seamlessly. So that's my feeling about Genie."
The idea of creating real-time, AI-generated, interactive video on the fly, while certainly possible, would be an incredibly inefficient and resource-intensive way to make a video game. It would also be non-deterministic. Large language models are statistical and probabilistic, so the same prompt can generate vastly different experiences.
AI is almost certain to play a major role in video game creation, but not in a way that threatens the video game engine industry. World models like Project Genie and other AI tools can generate assets and even write code that powers video game systems, but ultimately, something like the Unity Engine is necessary to tie everything together. AI is an accelerator for video game development, not a replacement for Unity.
Removing friction for its customers
Unity isn't sitting still as AI tools become more powerful. The company has already launched a beta of Unity Studio, its new browser-based editor that brings the power of the Unity Engine to the web.
Unity Studio accomplishes a few things. First, it attempts to break down silos between developers, artists, and others working on a video game project by enabling easy sharing of interactive 3D applications. Second, it doesn't require users to write code to create 3D assets.
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Bromberg sees the combination of this new way of using Unity Engine with AI built into the software as a major opportunity. "AI inside Unity will lower the barrier to entry, raise productivity for existing users, and democratize game development for non-coders. When combined with our new web-accessible authoring environment, our goal is to remove as much friction from the creative process as possible, becoming the universal bridge between that first spark of creativity and a successful, scalable, and enduring digital experience," Bromberg said.
The stock market is panicking over the AI threat, sending Unity shares tumbling. AI will certainly transform and disrupt the video game industry, but Unity is likely to be a beneficiary, not a victim. While Unity stock could remain under pressure, long-term investors should use this opportunity to seriously consider buying the stock.
