[Weekend Money] How the Gaming Industry Is Changing in the AI Era... How Should You Invest?

Mirae Asset Securities: "Structural growth in the gaming industry in the AI era"
However, expanding the supply of new AI-powered games will take considerable time
"Invest selectively in companies improving profitability of existing businesses"

Structural growth in the gaming industry is expected as artificial intelligence (AI) reduces development costs. However, a securities firm said selective investment strategies are needed, as there is not yet clear evidence of actual profit gains.

Mirae Asset Securities said in its report, "The AI Transition: Rethinking Competitive Strategies," that AI will drive structural changes that improve both the growth potential and profitability of the gaming industry. Advances in generative AI are lowering barriers to entry in game development, accelerating the influx of new developers and increasing the supply of new titles, while also reducing development costs.

"We estimate that the reduction in development costs for new game projects resulting from AI adoption will rise from 2% this year to 42% by 2032," said Lim Heeseok, a researcher at Mirae Asset Securities. "In the medium to long term, AI non-player characters (NPCs) and personalized content are expected to increase playtime and payment rates, while combining games with AI entertainment is expected to create new demand for games."

For these reasons, established game companies pursuing operational improvements are likely to stand out during the AI transition. As barriers to entry in game development fall, proven intellectual property (IP) and distribution and marketing capabilities will become more important. Expanding the supply of new titles using AI and creating new demand will take considerable time, but profitability improvements from workforce efficiencies and marketing optimization may materialize relatively quickly.

"Accordingly, companies that improve the profitability of their existing businesses while simultaneously transitioning to AI-based development systems and diversifying their genres will be well positioned," Lim said. "In particular, game companies that have reduced their fixed-cost burden through restructuring are likely to benefit from significant operating leverage as higher sales of new titles coincide with productivity gains from AI."

He also stressed that investment strategies should be selective, focusing on companies capable of delivering differentiated earnings. "The 2027 price-to-earnings (P/E) ratios of major domestic game companies are around 10 times, so valuation concerns are limited. However, a sharp sector-wide re-rating is unlikely until concerns about intensifying competition due to AI have subsided," Lim said. "That said, profitability improvements from AI adoption and the impact of lower app fees in 2027 are positive."

Mirae Asset Securities named Kakao Games its top pick. It expects momentum from new releases to build, led by "Odin Q," scheduled for release next year, and sees operating leverage gains from the company's active operational improvements and AI adoption. The firm also viewed positively Kakao Games' efforts to diversify its business through acquisitions of casual game companies, including Me2on.

Its second pick was NC, citing the company's potential to maximize the benefits of AI adoption through restructuring and a realignment of its business portfolio.

This content was produced with the assistance of AI translation services.