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3 Top Gaming Stocks to Buy in December

Motley Fool - Sun Dec 3, 2023

Video games are one of the most consistently growing tech markets, benefiting from never-ending demand for new content and hardware upgrades. The industry has multiple decades under its belt but has kept consumers coming back with innovative and engaging products. Data from Statista shows the video game market is projected to hit $250 billion this year and expand at a compound annual growth rate of 9% through 2028.

The sector has transformed in recent years to include new revenue-generating avenues, such as microtransactions, mobile games, and subscription-based game services. As a result, it's not a bad idea to dedicate a portion of your portfolio to the video game market and profit from its gradual growth for decades.

Here are three top gaming stocks to buy in December.

1. Nvidia

Nvidia (NASDAQ: NVDA) has become a favorite on Wall Street this year. Its growing prospects in artificial intelligence (AI) sent its shares soaring 220% since Jan. 1. However, long before its prominence in AI, Nvidia had a powerful position in gaming.

The company's graphics processing units (GPUs) are popular among PC gamers who use Nvidia's hardware to build powerful gaming machines. Additionally, the tech giant designs semi-custom chips for one of the world's most popular game consoles, the Nintendo Switch. Nvidia's gaming segment posted revenue growth of 81% year over year in the third quarter of 2023, showing signs of recovery from last year's economic downturn.

Nvidia is powering multiple areas of gaming with its chips, making its stock one of the best ways to invest in the industry. Meanwhile, its dominance in AI only strengthens its gaming potential, as it can offer video game companies access to immensely powerful hardware.

The company's price-to-earnings ratio (P/E) of 62 is pretty high right now and suggests its shares are expensive. However, both Nvidia's P/E and price-to-free cash flow have declined by over 70% since July, indicating its shares are much cheaper than just a few months ago. And as chip stocks go, Nvidia's P/E is significantly lower than AMD's, which has soared over 1,000. Alongside a powerful position in gaming and AI, it's worth buying Nvidia this month before its stock rises any higher.

2. Microsoft

Microsoft(NASDAQ: MSFT) wasn't always successful in video games, launching its Xbox brand in 2001 with the release of its first console. The American company took a gamble by entering a highly competitive sector that Japanese companies like Nintendo and Sony had long dominated.

However, Microsoft has come a long way in the last 20 years. It's now among the top four biggest public game companies by revenue, as of the second quarter of 2023.

The tech giant hit a major milestone in its gaming journey in 2017 when it debuted Xbox Game Pass, a subscription-based service that offers members access to an extensive library of games for a small monthly fee. Game Pass has often been described as Netflix for games. One of its biggest selling points is that subscribers can play brand-new Microsoft titles on day one of their releases at no extra charge.

From 2020 to 2022, Game Pass members rose 150% to 25 million. The platform added significant value to Microsoft's Xbox console, removing the need for consumers to pay individually for games, as was necessary on competing consoles. Moreover, Microsoft's acquisition of Activision Blizzard this year will further boost Game Pass with its catalog of popular titles, such as Call of Duty and Overwatch.

Microsoft's future is bright as we head into the new year, making its shares a compelling option for anyone looking to invest in video games this December. The company's average 12-month price target is currently at $407, projecting stock growth of about 9%. Meanwhile, 48 out of 53 analysts currently rate its stock as a buy/strong buy. With a recent acquisition and a budding AI business, the tech giant is likely to at least match that growth and potentially soar far higher. As a result, its stock is worth picking up this month.

3. Apple

Apple(NASDAQ: AAPL) might not be the first company you think of in a gaming discussion, but it has a potent position in the sector with the success of its App Store. In 2022, 66% of App Store spending came from mobile games, earning $110 billion of the platform's $167 billion. Mobile games have been so lucrative for Apple that the tech giant is the world's third-largest video game company by revenue.

App Store earnings are housed under Apple's services segment, which also includes income from subscription platforms like Apple TV+, iCloud, Music, and more. Services have quickly become the company's second-highest earnings segment after the iPhone and are on track to eventually take the top spot.

In fiscal 2022, services revenue growth hit 14% year over year, double that of the iPhone. Then, in 2023, services delivered 9% growth, while Apple's smartphone business declined by 2%.

Mobile games are a highly profitable business for Apple. This is likely to expand as smartphones grow more powerful and allow for better gaming. Meanwhile, new device options, such as the company's soon-to-be-released Vision Pro virtual/augmented reality headset, could unlock new earning opportunities in the industry.

NVDA Price to Free Cash Flow Chart

Data by YCharts

Apple shares have risen 320% since 2018, illustrating the reliability of its stock. Additionally, the chart above shows Apple has the lowest P/E and price-to-free cash flow of any stock on this list, making it one of the cheapest high profile investment options in tech and gaming. The company offers a unique but lucrative way to invest in video games, so consider its stock this December.

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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Netflix, and Nvidia. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.

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