Take-Two Interactive Software (NASDAQ:TTWO) stock has been feeling industry headwinds for some time now. However, year-to-date, TTWO stock has been a great recovery play, up over 21%. Despite the rally, TTWO isn’t too expensive, with shares going for just north of 21 times forward price-to-earnings (P/E), still well below the leisure product industry average of ~24.9 times. Though some may view Take-Two as a Grand Theft Auto (GTA) release-timing play or a two-hit wonder (pardon the pun) with its GTA and Red Dead Redemption franchises, I view it as more of a long-term value option. Therefore, I am bullish on TTWO.
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At this juncture, it’s hard to tell when consumers will be more willing to spend big money on entertainment offerings. My guess is that the pandemic-era stay-at-home spending boom is over. Regardless, I’d still look for Take-Two to keep investing in its content pipeline.
Management is eager to prove that Take-Two is more than just a two-hit wonder. The big Zynga acquisition, completed last year, was a step in the right direction as the firm looks to tap mobile gaming for growth.
Though the sizeable deal hasn’t been met with quick rewards, I do view Zynga as a great diversifier that could make the wait for the firm’s blockbuster titles somewhat more bearable.
Take-Two Interactive: What’s Its Take on AI?
As the video game developer behind the GTA franchise reports earnings after the close today, shares could be a major mover in either direction. Nonetheless, I don’t expect Take-Two to follow in the footsteps of the many other firms that have overused the acronym “AI” (artificial intelligence) to show it’s on the right side of an innovative trend. In many ways, AI has been some sort of “rally fuel” for almost every firm.
Even fast-food juggernaut Wendy’s (NASDAQ:WEN) has shown that it’s embracing AI with open arms, with its plans to use an AI chatbot to help with drive-thru orders. Of all the firms I thought would make a big splash in AI, Wendy’s was probably at or around the bottom of the list. These days, every firm has a lot to gain (and not a heck of a lot to lose) from embracing new AI technologies.
Though I don’t expect the word “AI” to be used excessively in a Take-Two conference call, I certainly would not be surprised if the topic were to be brought up briefly. It’s hard to escape the ChatGPT hype, after all.
Earlier this year, Take-Two’s CEO Strauss Zelnick commented on the rise of AI and ChatGPT. At this juncture, Zelnick doesn’t sound like he’s about to jump aboard the AI bandwagon, at least not yet. He doesn’t expect AI to impact the firm’s cost structure anytime soon. Further, he also dismissed the idea that AI can create a superior competitor to GTA.
Though Take-Two may not have big chatbot ambitions at the moment, I wouldn’t be so surprised if Take-Two embraces AI tools in the future to help bring a massive open-world title like GTA to the next level.
If Wendy’s can get investors excited about AI (shares are up more than 16% since its lows in March), you can bet that Take-Two, a firm with a lot of tech talent, can as well. Generative AI, in particular, could help build bigger and better worlds.
Nevertheless, only time will tell what the AI-driven future holds for video game firms. For now, it’s likely safe to say that Take-Two’s economic moat will remain intact, even if AI finds its way into the next generation of new games.
Take-Two Stock: Recession Risks Seem Overdone
Although Take-Two may be viewed as more of a leisure product company, I view it as a technology company that could have room to run once industry headwinds dissipate. 41% below its all-time high, Take-Two arguably already has plenty of recession risk factored in. As a recession potentially hits, video game firms may actually prove more resilient.
At the end of the day, a video game isn’t a hefty expenditure when you consider it on a dollar-per-hour-of-entertainment basis. In that regard, video games actually provide great value for consumers.
Further, a title like GTA, I believe, looks like it could be a profound success, regardless of when in the business cycle the title finally releases. As long as the game lives up to the hype, it’ll probably sell.
Is TTWO Stock a Buy, According to Analysts?
Turning to Wall Street, TTWO stock comes in as a Strong Buy. Out of 12 analyst ratings, there have been nine Buys and three Holds assigned in the past three months. The average Take-Two Interactive stock price target is $134.00, implying upside potential of 6.9%. Analyst price targets range from a low of $105.00 per share to a high of $154.00 per share.
The Bottom Line
Even as economic headwinds linger, Take-Two looks to be moving forward with its titles. For now, Take-Two’s top boss doesn’t expect AI to be a game-changer (please, forgive the pun). However, in a couple of years, perhaps the company may give it a second look! Given these factors, combined with its attractive valuation, TTWO stock looks attractive.
