Video Games Streaming In The Spotlight 

• As widely expected, Google unveiled on Tuesday, March 19th, its video gaming streaming service called Stadia that will allow people to play high-end games on any connected device (TV/PC/smartphone/tablet) without the need for specific gaming hardware (such as consoles or graphics cards).
• This initiative, which will launch by the end of the year, will probably start slowly as Google still has to convince on image quality, latency and to announce an attractive pricing and as the game catalogue is likely to be limited initially. In addition, Microsoft and Sony will certainly strike back in coming weeks/months with announcements about their next generation of consoles that are expected to offer massive horsepower, improved virtual reality experiences and exclusive titles.
• In all, we would expect Stadia to mainly recruit casual gamers in the beginning, with more serious gamers sticking to consoles and/or gaming PCs. That being said, streaming is arguably a secular trend for all media content and it’s likely that streaming will become the norm for playing games and that consoles will disappear by, say, 2025. In our view, Amazon and Apple could soon join the fray with rival streaming services.
• Against this backdrop, Sony and Nintendo could find themselves at risk due to their reliance on hardware and limited cloud capabilities. But pure video game publishers (notably Activision, EA, Take Two, Ubisoft) could benefit from a huge revenue and margin opportunity in the medium term as streaming offers two major positives:

1. reduced hardware costs (no need to spend hundreds of dollars on a PlayStation/Xbox anymore) will expand the addressable market to anyone with a connected device, pointing to significant revenue upside for the industry. 
2. the business models will fully shift towards digital (at the expense of physical games) and subscriptions, leading to much more recurrent, visible and profitable revenue. The only caveat is that we don’t have yet a clear view about the sharing of revenues between the publishers and the streaming platforms.

• In addition, the strategic value of video games publishers could increase as streaming platforms could be tempted to take them over in order to secure exclusive content.
• While we used to have a large video games exposure in our Innovation portfolio (around 30%), we currently have no position considering that the industry is entering into its traditional technology transition phase (shift towards next-gen consoles), with consumers holding off on games purchases pending the arrival of new consoles. The announced Stadia service will only add to consumers’ confusion in the short term.
• But clearly, we will look for attractive entry points on publishers in coming quarters as we consider that the long term outlook of video games has never been more exciting with streaming, e-sports and augmented reality acting as catalysts.
• On a separate note, AMD (a large position in both our Innovation and Artificial Intelligence portfolios) will power Stadia’s graphics in Google’s data centers, confirming its strength in the video gaming industry (the chip maker is already the supplier of graphics cards for Sony’s PlayStation and Microsoft’s Xbox). More importantly, this win gives the company increased traction in the important GPUs market for data centers, which is dominated by Nvidia’s artificial intelligence chips.