Adoption of AI is increasing across the video game industry, with growth prospects increasing, particularly through increased profitability, increased efficiency, and reduced production costs. Advanced AI tools could reduce game development costs by nearly 50% and generate around $22 billion in annual profits worldwide, according to Morgan Stanley analysts cited in a Reuters article.
This is a tailwind for the industry, which appears to be regaining momentum. The Triple Point Video Game Index, a global benchmark that tracks publicly traded video game companies, remains down about 18.97% year-to-date, but is up 7.77% over the past month. The index has registered an increase of 8.91% over the past year.
Improving risk-on sentiment could further support momentum in the sector and further strengthen growth prospects, as investors increasingly focus on the future of Middle East-driven volatility. According to Fortune Business Insights, the industry growth outlook remains optimistic, with market revenue expected to grow at a CAGR of 6.30% from 2026 to 2034, reaching a valuation of $415.78 billion in 2034.
Dig deeper into profit-making with AI
According to Morgan Stanley, as cited in the Reuters article cited above, the integration of AI tools that automate key development processes such as environment creation, interaction generation, and testing is expected to compress timelines, reduce costs, and increase profits. Wall Street brokerages say AI could make traditionally costly and labor-intensive game development more efficient by supporting smaller teams and faster post-release updates.
In addition to improving cost efficiency, AI has the potential to increase revenue by increasing player engagement and driving increased spending on add-ons, in-game purchases, and subscriptions. The brokerage points out that instead of relying solely on new titles, publishers can leverage AI-driven content to strengthen existing franchises, which could lead to more stable revenue.
Morgan Stanley expects global video game spending to reach $275 billion this year, with nearly $55 billion of that going back to development and operations, highlighting the scale of reinvestment in the industry.
Platforms and operators such as Tencent, Sony and Roblox are likely to be the main beneficiaries, along with large publishers such as Take-Two TTWO, Electronic Arts EA and Ubisoft, Morgan Stanley said. Meanwhile, weaker franchises could come under pressure as AI lowers barriers to entry and increases competition.
Improving hardware sales signal strength
According to data from Circana cited in Insider Gaming, US video game hardware sales recorded a strong rebound in March of this year, increasing 69% year-over-year. Sales from March 1 to April 4 were $500 million, compared to $297 million in the same period last year.
So far in 2026, video game hardware sales are up 38% year-over-year, totaling $1.07 billion through the first three months (compared to $777 million a year ago). The increase reflects increased demand as consumers hold off on purchases ahead of the expected launch of the Nintendo Switch 2.
As cited in the article above, Nintendo Switch 2 ranked first in terms of unit sales and sales, followed by PS5 in second place, up 3% from the previous year.
‘GTA VI’ could accelerate growth in the gaming sector
With the long-awaited GTA VI set to release this November, 2026 could be a big year for the video game industry. According to Circana, as cited in a GameSpot article and Yahoo Finance in early February, the launch of GTA VI is expected to fuel a record year, with total industry revenue projected at $62.8 billion, implying a 3% increase from 2025’s $60.7 billion.
Circana also said the game has the highest “purchase intent” ever recorded and that it expects sales of accessories and subscriptions to increase.
Video game ETF aims for upside
Investors can consider the following video game ETFs to increase their exposure to the market. Investors can consider VanEck Video Games and Esports ETF Espo, Global X Video Game &eSports ETF hero, Amplify Video Game Leader ETF GAMR and Round Hill Video Game ETF Otaku.
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Take-Two Interactive Software, Inc. (TTWO): Free Stock Analysis Report
Electronic Arts Inc. (EA): Free Stock Analysis Report
Global X Video Game & Esports ETF (HERO): ETF Research Report
Amplify Video Game Leader ETF (GAMR): ETF Research Report
VanEck Video Game and Esports ETF (ESPO): ETF Research Report
Round Hill Video Game ETF (NERD): ETF Research Report
This article originally appeared on Zacks Investment Research (zacks.com).
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