The Great Recession of 2008-2009 is now a distant, almost forgotten memory for most investors, while those new to investing have only enjoyed a massive bull market (if you ignore last year's temporary plunge at the start of the pandemic).
Growth stocks have been their own force of nature on Wall Street as easy money Federal Reserve policies, low lending rates, and government spending programs have created an opportunity for businesses to expand organically through innovation as well as acquisition. There's nothing to suggest anything will be changing in the near future.
Gaming stocks have been a big part of that. Over the past decade, the likes of Activision, Electronic Arts, and Take-Two Interactive have far outperformed the S&P 500.
Yet video games have changed markedly over that time as gaming has moved online and to digital formats, and the industry has been gamified with the growth of e-sports.
As the broad market index continues to set new highs, there are new opportunities to profit. The following two gaming stocks are ready to set the pace for future gains.
Gaming equipment and accessories maker Corsair Gaming (NASDAQ: CRSR) has been on a roller-coaster ride over the past two years. But with its stock down 27% this year and nearly 50% below its 52-week high, it's ready to set sail again.
Corsair makes high-end, high-performance headsets, keyboards, mice, controllers, and gear for livestreaming gamers and content creators. While the pandemic actually benefited Corsair as people were forced to stay home and turned to video games for entertainment, the current supply chain disruption has battered its business.
Revenue fell 14% in the third quarter, but Wall Street expects Corsair to generate almost $1.9 billion for the full year, which is forecast to grow to over $3 billion by 2025.
Data from Juniper Research suggests global esports revenue is expected to hit $1.1 billion this year and could reach $3.5 billion by the middle of the decade, while viewership of livestreamed gameplay could attract over 1 billion viewers worldwide.
Corsair's inventory of green screens, ambient lighting, sound-deadening panels, and its Cam Link Pro PCIe capture card and video mixer gives content creators all the high-quality tools they need, and the company is setting itself up for the future of the industry.
At less than 1.5 times sales, 15 times next year's earnings, and less than 20 times the free cash flow it produces, Corsair Gaming could be set up for future gains.
Although Nvidia (NASDAQ: NVDA) is taking advantage of the tremendous expansion underway in artificial intelligence, data centers, and automobiles by using its computer chips to drive further sales and market share gains -- data centers are set to become Nvidia's largest segment by 2025 -- gaming remains its bread and butter.
Arguably best known for its graphics cards that make processing-intensive video games possible, Nvidia's gaming segment generated $10.5 billion in revenue over the last four quarters, or 48% of the company's business.
Graphics processing units (GPUs) for gaming generated 47% of fiscal second-quarter total revenue and Mordor Intelligence indicates the gaming GPU market, of which Nvidia has an 83% market share, should grow at a compound annual rate of 14% through 2026.
With the increased adoption of cloud-based gaming, Nvidia is also seeing growth with its GeForce Now cloud gaming service, which presents an especially attractive catalyst for additional growth.
Nvidia is using the deep learning super sampling (DLSS) technology it developed to make gaming even better and more immersive. DLSS takes low-resolution images and scales them up to high resolutions for display on high-res screens through the application of AI.
Wall Street forecasts the chipmaker will grow revenue from $16.5 billion in 2021 to $51 billion in 2026, a better than 25% compound annual growth rate. Earnings are expected to grow even faster, more than 26% annually to $7.73 per share.
It's true Nvidia is not cheap, but as the dominant leader in its primary market and expanding into new verticals that provide opportunities for dramatic new revenue and profit growth, it will grow into the premium it presents and its stock will expand accordingly.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Nvidia, and Take-Two Interactive. The Motley Fool recommends Electronic Arts and recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.