The cloud is the future of gaming. We live in a digital world ruled by technology, and the games industry is no exception. Cloud gaming stocks will continue to benefit from this trend for years to come, because the games industry will continue to receive recurring revenue from subscriptions to online services by wide swaths of users.
But first, what exactly is cloud gaming? Techopedia offers this explanation:
“Cloud gaming refers to a game that resides on a company server rather than on the gamer’s computer or device. The gamer enters the game by installing a client program that can access the server where the games are running … The processing power for running the game is provided by the server, but the speed of the connection can become an issue for the gamer. Cloud gaming companies usually charge a fee or subscription, operating much like online video rental services.”
There are two advantages to cloud gaming versus other forms of gaming. The first is that users don’t have to spend as much money on hardware to keep up with the latest trends in online gaming and access the latest games. The second is ease of use. Many cloud platforms allow the same games to be played on phones, tablets and computers. The big caveat is that they require a fast, reliable internet connection.
A report by Grand View Research is highly optimistic about the growth of the cloud gaming market this decade:
“The global cloud gaming market size was valued at USD 0.47 billion in 2020. It is expected to expand at a compound annual growth rate (CAGR) of 48.2% from 2021 to 2027. The rising popularity of cloud gaming … is anticipated to drive market growth … The proliferation of smartphones across the globe is further expected to drive the market growth.”
The anticipated CAGR of 48.2% would be a key catalyst for cloud gaming stocks, as a growing market is pivotal for stocks to deliver strong financial performance.
With that in mind, here are four cloud gaming stocks to keep on your radar:
Cloud Gaming Stocks: Alphabet (GOOG, GOOGL)
Google’s cloud gaming platform is called Stadia, and it allows users to instantly play their favorite video games on compatible devices. Consumers can either buy games directly or subscribe to Stadia Pro for $9.99 for a library of games that grows over time.
Games can be played over home or mobile internet connections without waiting for installs, downloads or updates and can be played on a TV with a Stadia controller and a Chromecast Ultra. No other special hardware is required. Users can switch from screen to screen, pausing the game on one screen and seamlessly continuing playing on another.
As for the fundamentals, Alphabet is expected to have EPS (earnings per share) growth of 18.13% for the next 3 to 5 years and has 10-year trailing returns rate of 19.49%.
Nvidia (NVDA)
Nvidia’s cloud gaming service, GeForce Now, is available on several platforms such as Nvidia Shield devices, Microsoft Windows, ChromeOS, Android and iOS. It offers access to its services through a plethora of platforms.
GeForce Now has more than 800 games ready to play, and there are two memberships available. A free membership allows standard access and hour long sessions, and a paid membership at $9.99 per month allows for priority access to gaming servers and extended session length to play for hours without interruption.
Games can be played without downloads via a browser. GeForce Now also syncs with PC digital game stores so that users can access their libraries through it. Every Thursday, the company highlights the newest games, features and news.
NVDA stock is expected to have a 3-to-5-year EPS growth rate of 17.56% and 10-year trailing returns rate of 48.02%.
Cloud Gaming Stocks: Microsoft (MSFT)
Microsoft’s Xbox Game Pass includes the Xbox Cloud Gaming service, previously known as xCloud. With an Xbox Game Pass Ultimate membership and a compatible controller, players can enjoy console games, playing together with others on devices they already have through the Xbox Game Pass mobile app or via a browser. That browser support means that Microsoft has been able to add access for iOS users as well.
The service supports over 100 games, with new games added all the time. There are exclusive member discounts and deals and free perks including in-game content and partner offers. The first month of a subscription is $1, with subsequent months being $14.99 per month.
Microsoft’s expected 3-5 year EPS growth rate is 12.97% and the 10-year trailing returns rate is 27.07%.
Apple (AAPL)
Apple has realized that the key to consistent profitability is recurring revenue. Apple Arcade is a game subscription service that offers unlimited access to a growing collection of over 180 premium games, featuring new releases and other favorites from the App Store, without ads or in-app purchases.
More games are added all the time, and it comes at a cost of only $4.99 per month. Apple Arcade also includes family sharing features and can also be accessed through an Apple One bundle, which includes several other subscription services.
The biggest disadvantage of this gaming platform is that it’s limited to Apple’s ecosystem of phones, tablets and other devices. But that shouldn’t be a problem for AAPL stock.
The stock has an expected 3-5 year EPS growth of 12.5% and a 10-year trailing returns rate of 28.08%.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.