AI could unlock $22 billion in profits for gaming industry through cost cuts, Morgan Stanley says

Gaming industry could unlock $22 billion in profits on AI-driven cost cuts, says Morgan Stanley

April 22 (Reuters) - Advanced artificial intelligence tools could help cut down video game developing costs by nearly half, potentially unlocking about $22 billion in annual profits for game makers worldwide, Morgan Stanley analysts said. The adoption of AI tools to automate tasks such as creating gaming environments, generating dialogue and testing software could help shorten production timelines and reduce costs, helping lift margins over time, the brokerage said in a note dated Tuesday. However, it added, gains are unlikely to be distributed evenly across the gaming ecosystem. The Wall Street brokerage estimates global consumer spending on video games ⁠will total $275 billion this year, with roughly 20%, or about $55 billion, set to be reinvested in game development and operations. Typically expensive and labor intensive, game development could become leaner as AI enables smaller teams and faster post-launch improvements, Morgan Stanley added. The scale of modern game development is illustrated by Take-Two Interactive's (TTWO.O), opens new tab Grand Theft Auto VI, one of the industry's most anticipated titles, that is being developed since around 2018 - five years after the release of GTA V. It is currently slated for a November  2026 launch after multiple delays. "We see value concentrating in scaled platforms and discovery, ⁠particularly among companies with proprietary data, IP, and live operations," the brokerage said. "Biggest beneficiaries may be those who control distribution, data, and engagement." Morgan Stanley added that gaming platform and operators including Tencent (0700.HK), opens new tab, Sony (6758.T), opens new tab and Roblox (RBLX.N), opens new tab could be key beneficiaries, while large publishers such as Take-Two, Electronic Arts (EA.O), opens new tab and Ubisoft (UBIP.PA), opens new tab, which have the scale ⁠to deploy AI across multiple titles, could also benefit. In contrast, companies with weaker franchises, such as Playtika (8II.F), opens new tab and Netmarble (251270.KS), opens new tab may face greater pressure as AI lowers the cost to make mid-scale games, inviting more competition. "Game engines ⁠such as Unity and Unreal Engine face a more binary outcome: adapt or be disrupted," the brokerage said. Beyond cost savings, AI could lift revenues by keeping games engaging for longer, boosting ⁠spending on add-on content, in-game purchases and subscriptions. Rather than relying mainly on new releases, publishers could shift focus to upgrading existing franchises through AI-driven content, cushioning the financial impact, the brokerage said. Reporting by Rashika Singh and Siddarth S in Bengaluru; Editing by Diti Pujara Our Standards: The Thomson Reuters Trust Principles., opens new tab

Morgan Stanley Says Gaming Could Score $22 Billion With AI | PYMNTS.com

Analysts for Morgan Stanley apparently think so. As Reuters reported Wednesday (April 22), the Wall Street brokerage argues that advanced AI tools could help cut game development costs nearly in half. And that in turn could yield around $22 billion in annual profits for game makers. The analysts say that using AI to automate things like creating gaming environments, generating dialogue and testing software could reduce production timelines and costs, lifting margins over time. Morgan Stanley estimates global consumer spending on video games will total $275 billion this year, with roughly 20% being reinvested ⁠in game development and operations. Developing games is costly and labor intensive, the Reuters report noted, using the example of eight-year gap between entries in the highly popular Grand Theft Auto series. Morgan Stanley says AI could streamline game development by allowing for smaller teams and faster post-launch improvements, though that doesn't mean every gaming company will enjoy the same level of benefits. "We see value concentrating in scaled platforms and discovery, particularly among companies with proprietary data, IP, and live operations," the brokerage said. "Biggest beneficiaries may be those who control distribution, data, and engagement." As covered here earlier this year, AI advancements have already led to some debate about the impact of the technology on the gaming world. This came after the debut of Project Genie, an AI prototype from Google that allows users to generate interactive virtual 3D worlds by entering text prompts or uploading images. "The system can create environments, characters and basic interactions, producing short playable experiences that demonstrate how AI could automate elements of world-building and game design," PYMNTS wrote. The release sent several gaming stocks, including Roblox, plummeting and left analysts debating about the implications of the tool. For example, analysts at mBank said that while the technology is eye-catching, its capabilities were limited in their current form, while others see the tech as complementary to video game companies' existing work. "Project Genie reflects a broader trend in AI research toward systems that move beyond static content generation into interactive, real-time experiences," that report added. "While Google has not indicated when or whether the prototype will become a commercial product, the tool has amplified questions about how quickly generative AI can transition from experimental demos to production-ready systems."