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With numerous players around the world spending significant amounts on games and equipment, the video game industry is a force to be reckoned with in the entertainment space.
According to Mordor Intelligence, in 2023, the sector is worth around £196.56 billion.
As with many industries, gaming received a boost during the Covid-19 pandemic as lockdowns and travel restrictions pushed in-person pastimes off the table. Droves of new players picked up or dusted off a console as a way to unwind and connect with friends in a virtual space.
Here’s what you need to know about the growing gaming sector, and how retail investors can get involved.
What is the gaming sector?
The gaming sector is made up of companies that produce and sell video games, create consoles, organise esports (competitive gaming) events, offer live streaming and more.
It’s a fast-growing market. According to Statista, an estimated 2.77 billion people will play video games in 2024, rising to 2.86 billion in 2025.
The industry employs roughly 330,000 workers worldwide, estimates from the UNI Global Union, a services sector union body, suggest.
Although many major companies are based in the US, China and Japan, the UK punches above its weight in the gaming sector.
The West Midlands town of Leamington Spa, for instance, is a gaming hotspot, affectionately dubbed ‘Silicon Spa’.
Despite having a population of just 95,000, the town hosts about 10% of the UK’s approximately 47,000-strong gaming sector workforce, with developers such as Ubisoft, Codemasters, Playground and Sega Hardlight having set up shop.
Major titles including Far Cry 5, Formula 1 and Forza Horizon have been produced in Leamington Spa over the years.
Tabletop gaming
While comprising a smaller market, tabletop and board games present another avenue for investing in the gaming space.
One notable stock is the Nottingham-based figurine producer, Games Workshop (GAW), the company behind Warhammer – a popular fantasy tabletop game.
Share prices have tripled in the past five years, despite a 10% dip in December 2023, triggered by lower than expected licensing profits and a generous profit-sharing scheme that entitled staff to a £2,500 end of year bonus.
Recently, Games Workshop announced a deal giving Amazon the rights to produce films and TV programmes based on its Warhammer 40,000 characters.
How has the gaming sector performed?
The gaming sector has seen strong growth in recent years. Video games are projected to account for 10.9% of all entertainment and media spending by 2026, PwC data suggests.
Between 2019 and 2020 global video game spending rose by almost $3 billion, from $152.1 billion (£119.95) to $155 billion (£121.53 billion), according to Statista.
As in-person experiences became possible once again, the trend cooled. According to Newzoo, which provides market data for the industry, video game spending declined 4% between 2021 and 2022.
Martin Maloney, senior equity analyst at wealth managers Killik & Co, says: “Although there has clearly been a return to more ‘real life’ experiences post-Covid and consumer spending on gaming has declined, time spent gaming has continued to grow.
“The industry is expected to resume growth, with forecasted annual revenue growth in the mid-single digits from 2022 to 2024.”
Why invest in gaming?
In the gaming sector big hits can lead to major success, and popular titles can continue to rake in profits with sequels and spin-offs.
The Grand Theft Auto franchise alone has sold more than 395 million copies since the release of its first instalment in 1997, while Call of Duty has sold more than 400 million copies since the original game was released in 2003.
Dan Coatsworth, an investment analyst at AJ Bell, says: “Video games are big business and there is serious money to be made for companies with blockbuster titles.
“Earnings growth is typically a driver for share price growth and history has shown that many of the successful companies in the gaming sector have delivered strong share price gains.”
Savvy developers may also branch out into film and TV adaptations, and merchandise. The perennially popular Pokémon series is a great example.
Since the launch of the first Pokémon game in 1996, the franchise has raked in over $105 billion, according to Statista.
The gaming sector can also offer investors indirect exposure to the latest developments in tech. Mr Maloney of Killik & Co says: “We see a number of exciting thematic trends playing out over the long term that make us positive on the industry, including the ongoing shift to digital distribution, video game cloud streaming and multi-game subscriptions.
“In addition, we see the industry as a good way to gain exposure to the theme of artificial intelligence, with video gaming being one of the best use cases of generative AI.”
Elsewhere, the widespread adoption of smartphones has made gaming more accessible to casual players, while the development of new consoles is a regular catalyst for gamers to upgrade their gear and purchase the latest titles.
Mr Coatsworth adds: “The sector’s saving grace could come in the form of new hardware next year. There are rumours that Nintendo will release the Switch 2 in early 2024, which could drive a new wave of consumer spending.”
What are the risks?
While the gaming industry has shown promising growth over the past few years, there are key risks to consider.
Each game is costly and time intensive to produce, so if it fails to sell as predicted, losses can be steep.
Mr Maloney says: “Historically, the industry has been hit-driven, which can mean individual company revenues can be quite cyclical, especially if they are reliant on a particular franchise.”
Another challenge is the high price-tags of major games. It’s not uncommon for consumers to pay upwards of £60 for a new title, and hundreds more for a new console. With budgets stretched tight due to high inflation and the rising cost of energy and food, consumers may struggle to set aside money for games.
Mr Coatsworth says: “Consumers have been merrily spending for much of 2023 as they run down savings amassed during the various pandemic lockdowns. However, there are signs this spare cash is running out, particularly in the US where people are now turning to ‘buy now, pay later’ and credit cards to fund spending.
“There is a lot of content available and competition is fierce for gamers’ money.”
Gaming stocks and funds
If you’re keen to invest in gaming, there is a range of options, from individual public companies to broader funds with exposure to the industry.
Individual gaming stocks
Many of the largest game developers are publicly listed, including Take-Two Interactive, responsible for hit franchises such as BioShock and Civilization.
Take-Two also owns Rockstar Games, the production label behind games such as Red Dead Redemption, Max Payne and the aforementioned Grand Theft Auto.
Rockstar is due to launch the sixth instalment of Grand Theft Auto in 2025 – the first time the franchise has had a new release in over a decade.
The US-based Electronic Arts (EA), which produces franchises such as The Sims, FIFA and Medal of Honor, is another giant in this arena.
Elsewhere, Nintendo is behind the Switch and Wii Consoles, Mario, Zelda and Animal Crossing. Ninendo also owns one third of the (private) Pokémon Company.
Sony is another key console producer, responsible for the PlayStation. The company also sells gaming gear such as headsets, and acquired Halo developer, Bungie, in 2022.
Roblox, an online platform that allows players to create their own games, is another investment option, publicly listed on the New York Stock Exchange. The app is free to download, making profit instead through in-game purchases.
At time of writing, it’s attracted roughly 100 million regular players, and is particularly popular among pre-teen children.
Microsoft is another major player in the space. The tech giant is responsible for the Xbox console, and acquired Activision Blizzard, the studio behind games including Call of Duty, World of Warcraft and Candy Crush, for $69 billion in 2023. Microsoft has also owned Mojang, the studio behind survival sandbox game Minecraft, since 2014.
It’s worth noting that many major games developers are listed on the US or Japanese stock exchange, which means would-be investors must be comfortable navigating overseas markets and currency exchanges.
Investors looking for UK-based developers could consider Team17 and Frontier Developments.
Team17 is responsible for the cult classic Worms, along with the co-operative cooking game, Overcooked. Frontier Developments is known for simulator games including Planet Coaster and Planet Zoo.
According to the Entertainment and Retail Association (ERA), almost 90% of video games are sold online – but physical retail may still have a role to play when it comes to merchandise and in-person community.
One notorious example is the US-based GameStop. Retail investors from the Reddit community r/wallstreetbets rallied around the stock en-mass in late 2020, causing its value to rocket.
By January 2021, the share price had peaked at almost $500, resulting in huge losses for institutional investors, notably Melvin Capital, that were short-selling the company.
Although prices later fell, they have not returned to the all-time low of $2.57 seen in 2020. Across 2022 and 2023, prices fluctuated between the $15 and $30 mark.
At time of writing, the share price for GameStop is just shy of $20.
Gaming funds
Retail investors can also gain exposure to the gaming sector by investing in relevant Exchange Traded Funds (ETFs)
These vehicles pool money from individual investors to purchase shares in a range of assets.
The VanEck Vectors Video Gaming and eSports ETF, for instance, aims to track the performance of the MVIS® Global Video Gaming and eSports Index, by investing in a range of gaming-related equities such as Nintendo, EA and Roblox.
The fund also invests in tech firms that support gaming applications, such as graphics card producer, Nvidia.
It performed strongly in 2023, returning 31.63% in the year to December.
Elsewhere, the Global X Videogame and eSports ETF invests in a portfolio of 48 gaming-related equities including Nintendo, EA, Take Two Interactive and Roblox, as well as two Japanese games developers, Konami and Capcom.
The fund primarily invests in US and Japan-based stocks, but also has holdings based in China, South Korea and Taiwan, among others.
In the year to December 2023, the fund has returned 10.1%.
Gaming stocks and funds are widely available through a number of investment platforms.
When selecting the best platform for your needs, be sure to factor in costs such as dealing and platform fees. If you’re purchasing a stock listed outside the UK, you may also incur extra costs such as foreign exchange fees.
You’ll also need to decide whether to hold your gaming stocks and funds in a tax-free wrapper, such as an Individual Savings Account (ISA) or Self Invested Personal Pension (SIPP).
