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Investing in Video Game Stocks

By Keith Noonan – Updated Jun 10, 2022 at 4:18PM

The video game industry is a large, fast-growing sector that still has significant long-term expansion potential. The top companies in the industry have benefited from a strong surge in demand during the COVID-19 pandemic. Supply chain issues related to the latest game consoles have been hurting sales, but the future looks bright for the video game industry.

Best video game stocks

Companies that continue adapting to players’ demands and shaping their tastes for interactive electronic entertainment are well-positioned to deliver great returns for shareholders. Capcom (OTC:CCOEF), Take-Two Interactive (NASDAQ:TTWO), Microsoft (NASDAQ:MSFT), Electronic Arts (NASDAQ:EA), and Nintendo (OTC:NTDOY) stand out as top gaming stocks to buy as long-term investments. Let's more closely examine each of these companies:

Company Ticker Market Cap Description
Capcom (OTC:CCOEF) $4.6 billion A Japanese developer and publisher known for Resident Evil.
Take-Two Interactive (NASDAQ:TTWO) $17.6 billion The company behind the Grand Theft Auto franchise.
Microsoft (NASDAQ:MSFT) $2.28 trillion The tech giant sells Xbox game consoles, owns more than a dozen game studios, and has agreed to acquire Activision Blizzard.
Electronic Arts (NASDAQ:EA) $36.9 billion The king of sports games such as Madden and FIFA.
Nintendo (OTC:NTDOY) $53.8 billion Japanese console and game maker behind the Wii, Switch, and Mario.

1. Capcom

Capcom characters fighting a T Rex in tropical terrain
Image source: Capcom

Video game developer and publisher Capcom is thriving, thanks to successful releases that have strengthened its key franchises and produced impressive sales and earnings growth. In addition to its Resident Evil and Monster Hunter franchises, the company's properties include Mega Man, Devil May Cry, and Street Fighter. Capcom also has a deep library of lesser-known but beloved classic games.

There are many reasons to like this long-standing business, which has been a video game industry stalwart for decades and created some of the medium’s most memorable gaming experiences. Most recently, Capcom’s Resident Evil Village topped 5 million units sold since its May 2021 launch.

Capcom pays a dividend and, through its dividend payments, aims to return roughly 30% of its annual profits to shareholders. Earnings can be erratic in the video game industry, but Capcom's management clearly prioritizes returning cash to shareholders.

2. Take-Two Interactive

Take-Two Interactive character driving a sports car while being chased by the police.
Image source: Take-Two Interactive

Take-Two Interactive's valuation has grown rapidly due to stellar performances by its core franchises. Grand Theft Auto is the company's biggest and most important property, and, as a series, one of the most profitable in all of gaming entertainment. Take-Two’s Red Dead Redemption series is being well-received, and its NBA 2K basketball series is a leader in the sports game category. The company also owns a variety of smaller series and other development initiatives that help to drive growth.

Game development is typically complicated and resource-intensive, but the development studios of Take-Two’s top franchises have repeatedly delivered outstanding products. Take-Two is skilled at delighting players and sparking high levels of both engagement and in-game spending. The company's strong financial position enables it to aggressively pursue new growth opportunities in categories such as mobile games and esports.

Take-Two is using its financial strength to acquire mobile and social gamemaker Zynga (NASDAQ:ZNGA) in a $12.7 billion deal. Bringing Zynga under its umbrella will add a slate of popular mobile franchises to its portfolio and allow the company to leverage Zynga’s expertise in free-to-play games.

3. Microsoft

Call of Duty player
Image source: Activision Blizzard

Microsoft is primarily a productivity software and cloud computing company, but the tech giant is also one of the most prominent players in the video game industry. Microsoft is behind the Xbox game console, its Windows operating system is the de facto standard for PC gaming, and it owns a wide variety of game studios.

Microsoft owns Minecraft developer Mojang, Elder Scrolls developer Bethesda, and it agreed to acquire video game juggernaut Activision Blizzard in a blockbuster $70 billion deal. Activision Blizzard owns some iconic franchises, including Call of Duty, World of Warcraft, and Candy Crush.

Activision is an early leader in the esports space, and it has a major presence in mobile games. Perhaps most important for Microsoft, the Activision acquisition gives it a much stronger hand as tech companies race to develop and dominate the metaverse.

4. Electronic Arts

Electronic Arts characters walking in brightly-colored armor
Image source: Electronic Arts

Founded in 1982, Electronic Arts continues to play a defining role in the progression of the interactive entertainment industry. It's the second-largest video game company by revenue and maintains a leading position in the sports subgenre of gaming.

The pioneering game publisher owns popular licensed franchises, including Madden NFL and FIFA, in addition to a stable of high-profile original assets, including The Sims, Apex Legends, and Battlefield. Electronic Arts' June 2021 acquisition of Glu Mobile signals that the company is now aggressively expanding into mobile games.

5. Nintendo

A staged photo of the Nintendo Switch gaming console on a brown table.
Image source: Nintendo

Nintendo is a pioneer in the video game console industry. The Japanese company launched its Nintendo Entertainment System in the 1980s, following it up with a series of popular systems. The latest console from Nintendo is the Switch, which has sold more than 100 million units worldwide since its launch.

Nintendo is notable for making many of the most popular games on its own systems. Iconic franchises such as Mario, Zelda, Super Smash Bros., Animal Crossing, and Pokemon have spawned an endless series of games and hundreds of millions of unit sales over the years.

The staying power of Nintendo, despite all of the changes in the gaming industry over the past few decades, makes it one of the best video game stocks to own.

Related investing topics

Video gaming is likely to continue to grow

People love all kinds of entertainment, and video games offer a broad range of experiences that can be uniquely compelling. The global popularity of video games will likely continue to grow in the coming decades, providing leading game publishers with many opportunities to reach new players and expand sales in both developed and emerging markets.

While not all video game companies will continue to produce popular franchises, those leading the development and growth of video games are likely to benefit the most from the ongoing rise of gaming.

Keith Noonan has positions in Take-Two Interactive. The Motley Fool has positions in and recommends Microsoft and Take-Two Interactive. The Motley Fool recommends Electronic Arts and Nintendo and recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.

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