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The rise of generative artificial intelligence (AI) threatens to upend numerous industries in ways that may be a bit difficult to fathom. Though OpenAI — the firm behind the large language model (LLM) that impressed the masses — was the company to fire the gun that started the so-called AI race, only time will tell which firm will lead and ultimately run past the finish line first.
Here, we'll look at two companies that could transform the way we view the video game industry. Undoubtedly, the gaming industry's total addressable market (or TAM) is massive, estimated to be worth around $217 billion in 2022, and it's growing quickly at a 13.4% CAGR (compound annual growth rate), according to Grand View Research. Throw new technologies (like AI), and new devices (headsets) into the equation, and I think there's a chance the CAGR could accelerate closer to 15%.
The gaming scene has been dominated by mobile games and the rise of casual gamers who are seemingly glued to their smartphones. As new innovations advance, such as spatial computing and generative AI, there's a good chance the games of the future could draw in even larger crowds on a growing number of devices. For example, could Apple's (AAPL) Vision Pro headset help the virtual-reality field really take off?
Further, the rise of microtransactions and regular expansions could help better monetize your average video game release. In any case, big tech (hello, FAANG stocks!) has its sights set on the world of gaming and the potential growth it can offer.
Microsoft Stock Has Game (And Unmatched AI Talent!)
Microsoft's (MSFT) acquisition of Activision Blizzard (ATVI) may finally close in October. And if it does, that's one massive player that's off the public markets, making it pretty slim pickings for other large-cap companies with the desire to help consolidate the industry.
Love it or hate it, Microsoft's acquisition of Activision Blizzard looks to be a big win for Xbox Game Pass users. With new (or Day One) titles, like the recently released Starfield, available to subscribers, the days of buying games a la carte style may be numbered.
Starfield is an ambitious game that was reportedly 25 years in the making. The game may not be the most aesthetically pleasing. However, it does boast over 1,000 planets for gamers to explore. The scale of the game is so massive that it's actually quite profound.
Though such massive-scale open-world (or open-universe, in the case of Starfield) games carry a great deal of risk, given the development costs, I do think the rise of AI and the processing power behind many LLMs could translate to more ambitious titles just like Starfield.
Though Starfield has been met with mixed reviews by various critics, I still believe Microsoft is on the right track as it looks to flex its video game muscles and further dominate the industry.
For now, Microsoft stock has been driven higher, mainly by AI hype. The company has been rolling out various generative AI features across its software suite, while attempting to gain share in the search space, with Bing backed by ChatGPT.
Indeed, Microsoft seems to want to add a bit of AI magic to almost all of its products. Gaming could be one of them. Phil Spencer, the CEO of Xbox Gaming, is aware of the technology's disruptive potential, but is "protective of the creative process" for now. I think that's exactly what gamers and developers want to hear!
Over time, I view AI as a tool that could help developers not only become more productive but more creative. That bodes well for future titles that aim to one-up Starfield in terms of scale and ambition.
Take-Two Interactive Software: Grand Theft Auto Made Grander With AI?
Speaking of large-scale, ambitious titles, Take-Two Interactive (TTWO) is the company behind the infamous Grand Theft Auto series. With the latest release (Grand Theft Auto VI) likely coming in 2024 or 2025, all eyes will be on TTWO, which is now up more than 50% from last year's lows.
Though not much is known about what's in store for Grand Theft Auto VI, I do think recent news about an AI mod in Graft Theft Auto V is very intriguing. The company recently removed a mod (Sentient Streets) that allows players to have open-ended conversations with NPCs (Non-Player Characters).
As incredible as the technology is, there are risks associated with any LLM lacking in guardrails. As such, it's no mystery as to why Take-Two removed the mod. In any case, the generative NPC AI tech seems to be here. The only question is whether it's safe enough to launch alongside a multi-billion-dollar blockbuster title.
Conclusion
Microsoft and Take-Two are two firms that could help evolve the gaming industry as we know it. Both companies are certainly worth keeping tabs on as the industry levels up!
On the date of publication, Joey Frenette did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
