Here's How to Rank the 3 Biggest Video Game Stocks

Key Points

• Take-Two is the strongest performer with the least existential risk. 
• Activision's risk/reward setup makes for a compelling opportunity. 
• Electronic Arts is the laggard, with the highest risk and potentially highest reward. 

Since the back end of last year, video game stocks, as tracked by the VanEck Video Gaming and eSports ETF NASDAQ: ESPO, have been undergoing something of a resurgence. Having hit an all-time high in February 2021 as the pandemic inspired more and more housebound people to pick up or buy a controller, the good times understandably couldn't keep going forever as COVID receded. But having effectively fallen back to its pre-COVID levels while losing 50% of its value, the ESPO ETF is suddenly in the middle of a 40% rally. 

And if you're considering getting involved with some individuals' names from the industry, there are three heavyweight options. Here's how MarketBeat ranks them. 

Take-Two Interactive Software Inc.

Take-Two Interactive Software Inc. NASDAQ: TTWO

Best known for the hugely popular Grand Theft Auto (GTA) series, Take-Two's market cap of $24 billion is the smallest, but the stock can still pack a punch. Its shares are up 60% since Q4, but MarketBeat's MarketRank Forecaster tool still has it marked as a "moderate buy." 

Its most recent earnings report smashed revenue expectations and showed far more potential in the stock than many analysts had given it credit for. That same report also saw management hint strongly that the latest title in the GTA series will contribute heavily to the company hitting $8 billion in fiscal 2025 bookings. 

However, J.P. Morgan gave a neutral rating on Take-Two's shares. They're bullish on the new GTA title's effect on revenue but see that as too far away right now to justify getting involved.

Activision Blizzard Inc.

For Activision Blizzard Inc NASDAQ: ATVI, it's been well over a year since Microsoft Inc. NASDAQ: MSFT announced its intent to buy Activision for $69 million. Wall Street still isn't sure the deal will get done. 

If regulators approve it, it would be the biggest video game acquisition ever, and while some regulators have given the thumbs up, things are tougher in the U.S. and the U.K. The Federal Trade Commission (FTC) and the U.K.'s Competition and Markets Authority (CMA) have filed complaints to block the merger, claiming it'll harm competition. Microsoft is fighting back and appealing these objections, but instead of the original July 2023 target close date, it's more likely to be a 2024 deal. 

While J.P. Morgan is surprised at Microsoft's strong commitment to getting the deal done, and many regulatory concerns are edging towards resolution, the overall market sentiment seems less enthusiastic. 

The J.P. Morgan analysts estimate the probability of a deal to be no more than 20%. However, the team thinks this creates a solid risk/reward setup for investors, which has led to their Overweight rating on Activision stock. If the deals fall through, Microsoft will lose out. At the same time, Activision's impressive financial performance, including record revenue in its most recent earnings report, bodes well for continuing to deliver for investors if they keep going solo. 

Electronic Arts Inc.

Compared to the other two stocks on this list, shares of Electronic Arts Inc. NASDAQ: EA have been relatively less volatile in recent years. They just about matched an all-time high from 2018 in early 2021 but started a slow downtrend that only bottomed out this past March. The company shed 27% of its value, nowhere near the eyewatering 50% haircuts seen in some of its peers, but this muted comparison holds true with its recent upside too. 

Shares of EA have been flat since last November and up only 16% in the most recent rally since March, meaning they're back trading at 2018 levels, having recently posted the first quarterly earnings loss in years. It's perhaps no surprise that the J.P. Morgan team has given it an "underweight" rating, a decidedly bearish stance. 

In reaching that position, the team noted a mixed market backdrop, the tight levels observed, and an over-reliance on potential merger and acquisition (M&A) activity for future upside. To this last point, as we saw above, M&A deals in the video games industry are being closely scrutinized, and EA will only attract long-term investors once the risk has reduced.