Video game stock with nearly 40% upside because of AI opportunity, according to Bernstein
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Explosive growth fueled by a growing game library and artificial intelligence integration could lift NetEase ‘s shares by 38%, according to Bernstein. The firm initiated coverage of the video game developer on Monday with an outperform rating and a $120 per share price target. U.S.-traded shares ended Monday at $86.73, and they are up 24% in 2023. The China-based company primarily focuses its gaming efforts for PC and mobile platforms. Analyst Robin Zhu said NetEase will continue to reap profits from its existent wide game library while adding generative AI functionality to its products. “We expect generative AI growth to represent a massive productivity boost for video game development, driving efficiency gains in game production, but also enabling richer gaming experiences — both in-game (e.g. AI-powered NPCs [non-player characters], user-generated content) and within wider fan ecosystems,” Zhu said. The analyst added highlighted the forthcoming roster of high profile releases this year including “Justice Mobile,” “Harry Potter: Magic Awakened” and “Eggy Party.” NTES YTD mountain NetEase stock has gained 24% so far this year. Meanwhile, Zhu added that outside China, the total addressable market for global gaming is a potential $100 billion to $150 billion opportunity for the industry. But despite the promise that AI has shown over a variety of sectors while also spurring investor excitement, Zhu added that AI will work more as a supplemental aid to grow the gaming industry and NetEase instead of fully taking the wheel. “For all of GPT-4’s considerable strengths, the complexity behind video gaming development and integrating a wide range of creative work streams into a single experience means we’re sceptical generative AI can ‘disrupt’ video gaming anytime soon,” he said. Still, the trend of AI penetrating the industry will help developers spend less time on some of the more demanding aspects of building a game and help “idea generation and gameplay innovation instead of the very manual production of in-game assets.” Zhu also said the integration of AI will also help developers bring games to market faster, while also maintaining “engagement and willingness to pay.” — CNBC’s Michael Bloom contributed to this report.