By Video game stocks are poised to surge in 2025 ahead of a huge lineup of blockbuster releases, according to Ned Davis Research.
The firm initiated the video game theme at “overweight” for 2025, predicting 22% upside relative to the S&P 500 within the next year.
“New titles for 2025 — especially Grand Theft Auto VI — and the release of the Nintendo Switch 2 should ensure that a sales growth bottom is in for the industry,” NDR said in a recent note.
The research firm highlighted coming game releases, including Assassin’s Creed Shadows, Monster Hunter Wilds, Fable 4, Borderlands 4, and Take-Two’s Grand Theft Auto VI, which is expected to be released ahead of the 2025 holiday shopping season.
NDR noted that since the end of 2021, the S&P 500 has jumped 27% compared to just a 7% gain for its thematic video game index. The research firm now expects it to play catchup, as signs suggest profit margins are bottoming.
The firm highlighted that video game companies across the board cut their workforce in 2024 after weak post-pandemic sales.
“One of the most bullish things a company can do in a downturn is cut fixed costs so that when sales recover, operating leverage leads to significant profit growth,” NDR said. “The layoffs set the stage for margin improvement.”
In addition, NDR said the adoption and use of AI in the video game industry have the potential to lower game development costs.
In terms of a 2025 sales recovery, NDR said it expects a big one thanks to the “800 pound gorilla” that is Grand Theft Auto VI, “which could sell 250 million copies over its lifetime,” NDR said.
That’s based on Grand Theft Auto 5 being the second-best-selling video game of all time. The fact that it was released over 11 years ago means appetites for the next installment are high among gamers.
Finally, the Nintendo Switch 2 is expected to be released next year, which will be another catalyst for a sales boom. The release would come about eight years after the debut of the first Nintendo Switch, and Nintendo “will almost certainly support it with new releases of video games,” the research firm said.
The firm recommends investors gain exposure to the sector via the Global X Video Games & Esports ETF (ticker symbol HERO), partly due to its high exposure to Take-Two stock.
“We overweight HERO relative to SPY with a 22% relative return over one year,” NDR said.
