NVIDIA Corporation (NVDA): Should You Invest in the Competitive Game Console Industry?

Many video game developers have done very well. Activision Blizzard, Inc. (NASDAQ:ATVI) reported fourth quarter results that beat analyst expectations. Revenues were boosted by its “Call of Duty,” which ranked as the number 1 best-selling game franchise in 2012, and “Skylanders,” which ranked number 3. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is also doing very well. It reported that its net income rose to $71.4 million during the third quarter, much higher than net income of $14.1 million for third quarter in the previous year. Take-Two Interactive is planning to launch Grand Theft Auto V in September 2013.

Valuation

Sony is cheap enough to make it a compelling hardware stock:

At a discount to the book value of its assets, Sony is attractive as a technology and media stock. It also trades at a very low price-to-sales ratio. Take-Two Interactive is also trading at low price-to-sales ratios relative to other gaming stocks while having comparable growth prospects.

Conclusion

Nobody really knows what is going to happen to gaming. Games may be played on souped-up PCs, new versions of familiar consoles like the PlayStation 4, or on mobile devices like tablets. They could also be played on some hybrid system or something entirely unknown today.

Since there is considerable competition between platforms, speculators should demand attractive valuation multiples as compensation for the risk of any particular platform becoming unpopular. Sony and Take-Two Interactive are cheap bets for software at today’s market prices.

The article Should You Invest in the Competitive Game Console Industry? originally appeared on Fool.com and is written by Bill Edson.

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