Video game stocks are likely to stage a comeback in 2023, Morgan Stanley analysts said in a report Tuesday. The reason is that publishers plan to release a bigger slate of new games to a larger installed base of next-generation consoles in the year ahead.
Video game stocks rocketed to record heights during the first year of the Covid-19 pandemic as people stayed home and splurged on games. But the sector suffered as the economy reopened after the health crisis and sales declined. That drove valuations for video game stocks to seven-year lows, Morgan Stanley said.
"While 2022 has been a challenging year for the video game industry, we see 2023 setting up to be a favorable year as publishers push out a larger slate of new titles on a significantly higher installed base for next-gen consoles," the analysts said.
Morgan Stanley named five video game stocks as "preferred picks." They include U.S.-traded Take-Two Interactive Software, NetEase and Nintendo. It also picked Japanese stock Nexon and European stock Ubisoft.
Take-Two Among Top Video Game Stocks
"We have screened our coverage universe for stocks with a robust game slate, exposure to next-gen consoles, beneficiaries of China's easing regulations, and valuations that look attractive in a historical context," the analysts said.
Morgan Stanley likes Take-Two for its successful "NBA 2K" franchise. It also likes upcoming games in its "BioShock" and "Grand Theft Auto" franchises.
The publisher also should benefit from increasing availability of Sony's supply-constrained PlayStation 5 game console.
Of the other U.S.-traded video game stocks, NetEase will benefit from a more favorable regulatory climate in China. And Nintendo will gain from its continued success of its Switch console and new game releases such as "Splatoon 3" and "The Legend of Zelda: Tears of the Kingdom."
IBD's Computer Software-Gaming industry group currently ranks No. 92 out of 197 industry groups that IBD tracks. The group includes 21 video game stocks.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
