For investors looking to level up, mobile gaming appears to be the most exciting sector in the video game industry.
The mobile gaming industry has been in the spotlight lately. Most of the attention has been focused on the semiconductor industry. Sure, the AI boom may be real. But that doesn’t mean investors should ignore the costs of entry. If Friday’s tumultuous trading session showed us anything, it’s that the hottest area in technology can be vulnerable, even though nothing has changed in the AI space. All of these factors are driving a surge in mobile gaming stocks.
Meanwhile, video game stocks held up fairly well, falling less than the overall Nasdaq 100 Index, which fell about 1.5% on the day, and less than the semiconductor ETF, which lost 4% in value on Friday.
As the benefits of AI spread to other industries like gaming, it might be worth keeping an eye on them. Among gamers, I’m most intrigued by the leaders in mobile, the sector of gaming that’s expected to grow the most.
Electronic Arts (EA)
Image credit: ricochet64 / Shutterstock
Electronic Arts (NASDAQ:EA) stock hasn’t seen a sharp rise since peaking in early 2021. The stock may be within reach of new highs (down about 8% from its all-time high), but without a timely catalyst, consolidation could continue for another year.
The $36.1 billion gaming giant plans to cut 5% of its workforce (about 670 people) as it seems keen to find the right balance between growth and efficiency amid industry headwinds and the woes of high interest rates. While the latest cuts are discouraging for investors, EA is in it for the long haul, so don’t expect it to ease up on its mobile gaming business.
EA’s stock price needs a big push from mobile to pull itself out of its slump. In recent years, the company has aggressively strengthened its mobile gaming division, acquiring smaller studios such as Glu Mobile and Playdemic.
Through these deals, EA has emerged as a mobile leader in North America. With its sports division looking to enter free-to-play mobile with its sports franchises, EA may be the company to bet on in mobile gaming. At a forward price-to-earnings ratio of 17.7x, the stock looks fairly cheap.
Take-Two Interactive (TTWO)
Source: Sergey Yelagin / Shutterstock.com
For investors looking to invest in mobile games, Take-Two Interactive (NASDAQ:TTWO) is my No. 2 pick. With mobile gaming giant Zynga now part of the Take-Two group, it’s no surprise. Still, I think the best is yet to come for Zygna and Take-Two’s long-term mobile gaming ambitions.
With Zygna reeling from its pandemic peak and trying to get up to full speed again, this mobile franchise could have what it takes to propel Take-Two to the top of the mobile scene. The company is looking to become a bigger player in what it calls “the fastest growing segment in interactive entertainment.” Plus, I have no doubt about the company’s ability to rise to the occasion.
The mobile business is great, but as the company approaches its scheduled 2025 release, the big talking point is the impending release of its non-mobile hit, Grand Theft Auto VI.
At the time of writing, TTWO shares are trading at around 23.1 times their forward P/E, significantly higher than EA’s stock price, likely due to GTA, which is arguably one of the top mobile gaming stocks.
NetEase (NTES)
Source: IgorGolovniov / Shutterstock.com
For investors looking to make a big splash in mobile, it’s hard to ignore China’s NetEase (NASDAQ:NTES), which is under pressure following the pandemic-induced work-from-home boom. At 16.8 times P/E, NTES stands out as one of the most valuable stocks in mobile gaming.
That said, there are substantial risks associated with investing in China. Given those risks, I’m not sure the relative discount in the stock price is a reason to jump on this company over the likes of EA or TTWO. With a (slight) revenue shortfall in the most recent quarter, the company is likely feeling the same pressures as most other gaming companies.
Either way, I believe mobile is one area to invest in as the industry challenges continue. NetEase has some of the most ambitious titles in mobile, and as it is a mobile-focused company, investors looking for mobile exposure may prefer it over its North American rivals. If you’re looking for a top mobile gaming stock, start with this one.
As of the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author in accordance with InvestorPlace.com’s Publishing Guidelines.
Joey Frenette is an experienced investment writer specializing in technology and consumer stocks. A contributor to Motley Fool Canada, TipRanks, and Barchart, Joey excels at finding mispriced stocks with long-term growth potential in rapidly changing markets.