The fact that gaming is no longer just gaming continues to benefit esports stocks. Esports, or competitions centered on video gaming, has reached new heights in popularity. Since Activision (NASDAQ:ATVI) created its Overwatch League for competitive gaming, esports have increased in popularity.
Over 360 million watched streamed video of the League of Legends competition. Since then, Arlington, Texas — already home to both the Dallas Cowboys and the Texas Rangers — will construct another sporting facility as it builds the largest arena in the country dedicated to esports. Further, the International Olympic Committee (IOC) may approve esports as a competition starting with the 2024 Olympic Games.
Such a trend affects stocks across the tech landscape. Not only are gaming companies helped, other firms also derive a considerable benefit. Many point to the stocks that dominate American video gaming, namely Activision, Electronic Arts (NASDAQ:EA), and Take-Two Interactive (NASDAQ:TTWO) as obvious winners.
These five esports stocks, however, will also become less-obvious beneficiaries:
Esports Stocks to Buy: Micron (MU)
Micron (NASDAQ:MU) wields tremendous behind-the-scenes power in esports. With speed so critical, gamers need the fastest, most powerful memory chips available. An interest in esports creates yet another reason for consumers to purchase the fastest, most expensive memory chips. Micron stands as the lone U.S.-based player in memory chips. With a supply shortage and a tremendous demand for memory, Micron can game the gaming industry when it comes to memory chip profits.
Buyers in MU stock need to keep one caveat in mind. Esports will change the demand, but not the demand dynamics of memory chips. Once the supply of memory catches up to demand, the price of memory will fall. The profits and price of MU stock will fall along with it at that point. This is why MU stock remains the most dangerous of these picks in spite of its price-earnings (P/E) ratio of about five.
Still, as long as memory prices remain high, MU stock will remain an under-the-radar play among esports stocks. When it comes to memory, gamers need the best. Obtaining the best will mean paying whatever premium the market can bear for Micron memory chips.
Esports Stocks to Buy: Microsoft Corporation (MSFT)
Most gamers think of Microsoft Corporation (NASDAQ:MSFT) as the maker of the popular Xbox One gaming console. However, the speed differentials make the processing power of PCs superior for gaming. While other companies produce consoles, none of them have Microsoft’s experience with PCs. If the popularity of esports drives demand for PCs over consoles, MSFT software still powers the majority of PCs. Moreover, the company can take its experience in gaming and easily transfer that expertise onto a gaming-oriented PC.
Secondly, investors should not forget about Microsoft’s cash hoard. The company reported over $132 billion in cash available as of the end of Q1 2018. Most analysts credit this cash with buying the company a prominent position in social media with its purchase of LinkedIn. Its cash also helped it become one of the top cloud computing companies with Microsoft Azure. The company has proven that if it does not have the needed expertise, it can buy it.
Microsoft has recovered from the decline in its core PC business. It holds a forward P/E ratio of 25, and analysts predict average annual growth of 12.63% over the next five years. Now that the company has proven it can prosper outside of the PC market, MSFT stock will remain on a long-term growth trajectory.
Moreover, with its foot in both the PC and the gaming worlds, investors can count on the company applying its PC and gaming expertise to make itself one of the major esports stocks.
Esports Stocks to Buy: Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) has lately become better known as a company focused on artificial intelligence (AI), machine learning, and virtual reality (VR). However, many will remember that the Santa Clara, California based manufacturer of graphics processing units (GPU) started out in the gaming industry.
Gaming remains a core focus of NVDA stock, and hence, stands out among esports stocks. These graphics capabilities allowed the company a natural segue into self-driving cars and data centers.
esports creates an opportunity to thrive in its original industry. Gaming software depends heavily on Nvidia GPUs to power its games. As esports brings video gaming to a whole new level, NVDA stock profits from yet another lucrative niche.
From a financial perspective, the stock will look a little pricey to some. It carries a forward P/E ratio of just over 33. However, NVDA stock still should see profits rise by an average of around 14% per year over the next five years. Also, Nvidia will also remain on the cutting edge of tech for years to come.
Esports Stocks to Buy: Tencent (TCEHY)
Due to its China base of operation and its involvement in many areas, American investors can easily forget Tencent Holdings Ltd (OTCMKTS:TCEHY). While Tencent specializes in internet related services, entertainment, and AI, it also holds a prominent place in the video gaming industry. In fact, it has become the world’s largest gaming company. It acts as both a partner and a competitor to Activision Blizzard, EA, and Take-Two.
As China’s place in the world rises, so too will Tencent’s. The company recently released its Arena of Valor game in North and South America. It has also gained popularity in the esports in China its Honor of Kings and League of Legends video games. Last year, the company also unveiled a plan to invest $15 billion in esports over the next five years.
Despite the modest press Tencent receives in the U.S., its market cap stands at over $460 billion. Though it trades at a forward P/E of 38.6, analysts predict a 41.5% increase in profit next year before profits slow down.
Also, given the company’s size and influence, it will likely trade on the NYSE or Nasdaq before too long. Given the valuation and the trade war with China, I would probably wait on TCEHY stock. However, at a lower price, Tencent will likely profit long-term investors in esports.
Esports Stocks to Buy: Walt Disney Co (DIS)
Disney (NYSE:DIS) has positioned itself to benefit from esports. In fact, Disney just signed a deal with Activision Blizzard to show Overwatch League competitions. These shows will appear on ESPN’s networks as well as ABC and Disney XD. In fact, ESPN will air esports competitions in primetime for the first time in its history. Such a deal should also prevent the other networks from gaining as large of a foothold in showing esports.
DIS stock also happens to sell at a discounted valuation. The equity supports a P/E of about 14.3. Also, the company grew its profits by an average of over 13% per year over the last five years. Analysts believe it will continue a 13% average growth rate for the next five years. Buying DIS stock will place investors at the center of broadcasting esports. It will also allow them to benefit from the best content library in the world as well as its profitable theme parks.
Also, given Disney’s reach, few should be surprised if esports-oriented rides or areas appear at the Disney theme parks. Esports could also inspire Disney’s movie or television-related content. Disney will probably enjoy many different projects and profit centers from video gaming. With its low valuation and potential for esports growth, investors should consider DIS stock as one of the more profitable esports stocks.
As of this writing, Will Healy is long MU stock. You can follow Will on Twitter at @HealyWriting.
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