Game stocks gain a bounty as focus shifts to cloud

The holiday season is a much-anticipated time of the year for video game makers, like the retailers who also start grooming their portfolios well in advance. Among the top players, Activision Blizzard (ATVI) expects to woo gaming buffs with the new Call of Duty: Black Ops 4 and World of Warcraft during the holidays, while Take-Two Interactive (TTWO) bets on NBA 2K and GTA Online.

Industry watchers see a double-digit growth in the revenues of the two gaming giants and their peer Electronic Arts (EA) this year. Another factor that is common among the companies is the stiff completion they face from each other. The equations changed drastically after the blockbuster entry of Fortnite last year, forcing others to revisit their strategies. The growing clout of Fortnite on the market is evident from the downgrade of Activision and Electronic Arts by Bank of America to neutral from buy last month, citing the fresh competition.

Industry watchers see a double-digit growth in the revenues of the two gaming giants and their peer Electronic Arts

But, technology has evolved considerably since the last season – here the reference is to cloud computing. It is a game-changing concept as far as the sector is concerned, and can be likened to the revolutionary shift from physical game disks to downloadable software that eventually stepped up the margins of game makers.

The good news is that when more and more video games are migrated to the internet, it will boost profitability further. Cloud offers convenience and better quality to the customers, as it does to the other enterprises. Once the games are hosted on cloud, it frees users from the tiresome task of downloading them and manually updating the hardware.

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So, it is natural that the sector is catching the attention of investors more than ever before. Estimated to grow to a $180-billion market in the next three years, it also feeds auxiliary industries that develop gaming hardware and consoles.

We are already in an era where users can bypass even the download process and instead live stream video games just like movies and TV shows. Meanwhile, the key to widespread adoption of cloud-based game streaming is the availability of high-speed internet services like 5G, without which it will only add to the congestion of the already choked-up networks.

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Shares of Activision Blizzard (ATVI) had a bull-run so far this year, hitting a new high in July.  Over the past twelve months, the stock gained about 26% and is currently hovering near the $80-mark.

It is a similar story for Electronic Arts (EA), which rose progressively since January and reached an all-time high in mid-July. The stock suffered a massive pull-back last month after the company postponed release of the new Battlefield franchise to November.  After retreating from the peak, the stock has stayed nearly flat.

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