During the 2008 recession, the video games market became a haven for investors as it proved less vulnerable to economic headwinds. Banks collapsed, and the housing market crashed, yet Nintendo continued to sell millions of consoles and games.
In 2023, the games industry might not be as recession-proof as it once was. However, it remains a solid growth market and showed its resilience last year as Sony and Microsoft had trouble keeping consoles on shelves despite macroeconomic challenges. Meanwhile, more recent developments, such as microtransactions and mobile games, provide more avenues for game companies to boost earnings.
Video games are an ever-expanding industry where companies benefit from consistent demand for new content and regular updates to hardware that force consumers to upgrade their current setups every few years. As a result, it's not a bad idea to strengthen your portfolio by holding a video game stock over the long term.
As the world's most renowned gaming corporations, Nintendo, Sony, and Microsoft might look like obvious picks. However, there are some less obvious gaming companies that could offer more gains. So, here are two under-the-radar gaming stocks you can buy and hold for the next decade.
1. Nvidia
Nvidia (NVDA 0.25%) has been the toast of Wall Street this year, with its stock soaring more than 210% since Jan. 1. Investors have rallied as the company claimed about 90% of the artificial intelligence (AI) chip market. Its years of dominance in graphics processing units (GPUs) saw it catapult to the top of the burgeoning sector as it became the go-to chip supplier for AI-minded companies.
As a result, it's easy to forget that prior to this year, Nvidia was best known for its leading position in the games market. For years, the company's GPUs have been a favorite among PC gamers, who use Nvidia's chips to play new titles at settings far higher than possible on a console. Nvidia's success in games paved the way for it to achieve an 87% market share in discrete GPUs, perfectly positioning it to flourish once the AI market exploded.
In addition to PC gaming, Nvidia has a lucrative role in consoles by being the exclusive supplier of chips to the Nintendo Switch. Since its launch in 2017, Nintendo has sold more than 129 million Switches, making it the third-best-selling console of all time. The partnership has put Nvidia's hardware into the hands of millions of consumers worldwide and offered a consistent revenue stream. Rumors have swirled that a sequel to the Switch may be released in 2024, which could offer the company another boost to earnings.
As a leading chipmaker, Nvidia powers multiple industries with its hardware, making its stock an attractive way to invest in video games, AI, cloud computing, PCs, and more. It's an excellent option to buy now and hold for many years.
2. Apple
Apple (AAPL 2.00%) has grown into a tech behemoth, with its business expanding far and wide. Its dominance has seen it gain solid positions in markets that would likely surprise most consumers. In fact, Apple is perhaps the most successful under-the-radar gaming stock as it is currently the world's third-largest games company by revenue.
The tech giant achieved its dominance in games with the massive success of its App Store and consistent growth in the mobile games industry.
In May, Apple announced its App Store had generated more than $1 trillion in 2022, with mobile games accounting for 66% of consumer spending. The majority of those earnings would have gone to developers, but Apple's financials show the App Store is an incredibly lucrative part of its business.
Income from the App Store is filed under the company's services segment, which has quickly become the second-highest earning part of its business. Last year, services revenue rose 14% year over year, double the iPhone's growth. Meanwhile, services profit margins generally hover around 70%, compared to its products, which come in at around 36%.
Without seeking it out, Apple has become one of the biggest names in gaming. Its services segment growth shows its gaming business is on the charge, making Apple stock an attractive way to invest in the market and profit from the long-term development of video games.
