AI's next big opportunity—the creation of games!

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Generative AI is reshaping an industry with an annual consumption scale of up to $275 billion.

According to Wind Chasing Trading Desk, Morgan Stanley released a deep dive report on April 21, in which analysts stated that AI tools could reduce AAA game development costs by nearly half, unlocking around $22 billion in incremental profit.

Morgan Stanley estimates that global gaming consumer spending will exceed $275 billion by 2026, of which about $55 billion (around 20%) will be reinvested in development and operations. The rapid evolution of generative AI and agent workflows could compress the development costs of large AAA games by about 44%, creating an industry-wide incremental profit pool of around $22 billion—equivalent to about a 35% increase in current publisher profits.

However, the report also warns that this pie won’t be sliced evenly: part of the benefit will be captured by AI compute power providers (an estimated annual investment exceeding $90 billion in computation), and another part will be absorbed by the market as competition intensifies.

"Value will be concentrated in scaled platforms and content discovery layers, especially among companies with proprietary data, IP, and active operational capabilities."

Four scenarios, three destinies—who are the real winners?

Morgan Stanley constructed four scenario frameworks, from "incumbents adapting" to "platform disruption," with logic building step by step.

In the mildest scenario one (incumbents adapting), traditional publishers could gain about $13 billion in incremental profit (EBIT rising by 34%), and advertising/discovery platforms would benefit by about $8.2 billion (EBIT rising by 26%).

In the more disruptive scenario three, publisher profits are almost entirely consumed by competition, while the advertising ecosystem alone enjoys about $14.7 billion in incremental profit (EBIT rising by 47%)—the key logic being: as game content floods the market, the cost of vying for users’ attention inevitably surges.

The report highlights the most promising beneficiaries for special attention: Tencent has built a full-stack AI framework from custom chips to world models, with 2025 game revenue growth (+22%) far outpacing the global industry (+7%); Roblox combines both creation platform and distribution attributes, with deep AI tool integration and positive feedback from the creator network; AppLovin is considered "the biggest winner in the age of content glut"—the more games, the higher the value of discovery and monetization platforms.

"The more abundant content supply becomes, the scarcer attention gets, which in turn strengthens the strategic value of platforms efficiently connecting creators and users."

Sony, NetEase, and NCSOFT also receive positive ratings due to their IP reserves, live operation capabilities, or early AI deployment.

Moats still exist—but it’s important to see what kind

The report remains calm about the narrative that "AI will disrupt everything."

IP accumulation, core gameplay design, and live operations are considered three major barriers that AI is unlikely to replicate in the short term. Just as the popularity of smartphones allows everyone to take photos, but top directors still remain scarce—democratization of game creation does not equate to the disappearance of high-quality content scarcity.

In contrast, companies relying on homogenous content (like Playtika and Netmarble) face pressure; Unity and Unreal Engine stand at the crossroads of "adapt or exit."

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The above exciting content comes from Wind Chasing Trading Desk.

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