AI: Gift or Disruptor? (Gaming): Room for Level up

This article represents the third instalment in our series examining the impact of AI across different industries. In the first two articles of the series — Big Tech and Software — we assigned a very attractive rating to both industries, albeit for very different reasons. Big Tech stands as a direct beneficiary of AI, while Software appears to be a victim of AI disruption; however, we believe the market has significantly overpriced the risk of replacement.

To date, market developments have broadly aligned with our earlier calls. The Software sector, measured by the iShares Expanded Tech-Software Sector (IGV) is up 20% as of 4^th June 2026.

Today, we turn our attention to another major topic: the risks and opportunities that AI presents to the gaming sector. At first glance, AI could potentially lower barriers to entry across the industry, enabling more games to be developed by smaller teams — a genuine democratiser at the indie and AA tiers. As a result, companies such as Take-Two Interactive, Tencent, and Nintendo (to a certain extent) have all seen their share prices decline alongside the broader software sector sell-off. For the remainder of this article, we examine how artificial intelligence is reshaping game development, player experience, and competitive moats — from a cross-listed equity perspective across the global gaming value chain.

Brief background

In 2024, the global video game market stabilised at approximately US$254 billion, representing modest year-on-year growth of 3% as the industry adjusted to post-pandemic consumer behaviour. Industry forecasts project the market to approach US$263 billion in 2025 and exceed US$280 billion by 2026.

This massive consumer expenditure is distributed across distinct platform architectures, with mobile gaming dominating the market (accounting for around 49% of total industry revenues in 2024), followed by console gaming and PC gaming.

From an investment perspective, the sector can broadly be divided into two main categories: hardware and platform aggregators, and game developers/publishers. Hardware and platform aggregators control the operating infrastructure, distribution networks, and matching layers of the ecosystem, with companies such as Sony, Nintendo, and Microsoft leading the segment. Meanwhile, game developers and publishers create games, with intellectual property (IP) serving as their strongest moat. Key players include Take-Two Interactive, Tencent, NetEase, and Electronic Arts (EA).

Figure 1: Gaming Industry growth is set to increase, ending the post-pandemic slowdown 

Sources: Ampere Analysus; SensorTower; BCG analysis of historical and forecasted data. Console hardware data includes handheld PC devices. In-app purchases include mobile subscriptions such as Apple Arcade. 

How AI is revolutionising the gaming industry

1)      Reduction in cost and development time

Artificial intelligence in game development refers to the use of machine learning models, procedural systems, and automation tools to assist or replace parts of the production process. This matters because modern games require massive amounts of content, faster iteration cycles, and lower costs — demands that traditional workflows increasingly struggle to support.

 AI can automate content creation and accelerate development cycles. In 2025, more than 7,000 Steam titles disclosed the use of AI, representing roughly one-third of all releases, according to a report from Totally Human Media.

Coding. AI coding tools can generate functions, scripts, and logic based on prompts or partial inputs. AI coding tools can generate functions, scripts and logic, reducing development effort for routine tasks.. Developer case studies suggest AI-assisted procedural generation can materially reduce environment art costs and development time, according to developer benchmarks, while AI can cut the time spent on world-building tasks by as much as 50% compared to manual methods.

Bug detection. AI systems can analyse codebases to identify bugs, performance issues, and vulnerabilities. AI bots can simulate thousands of playthroughs to detect bugs, balance issues, and edge cases. The results have been impressive, with major game developers already reporting strong outcomes. Unity reported a 77% decline in median project development time, from 91 hours to just 21 hours between January 2022 and December 2025, driven by AI-integrated workflows and standardised engine tools. Tencent’s CEO, in the company’s most recent earnings report, explicitly credited AI with supporting “greater engagement with our games”. Tencent Games also debuted VISVISE at Gamescom 2025, describing it as an end-to-end AI game creation suite capable of reducing rigging and skinning for game characters and skeletal animation to as little as 10 seconds — tasks that would otherwise take between 1–3.5 days and 3–7 days respectively.

2)      Improving quality and player experience

Smarter non-player characters (NPCs). AI enhances player experience by enabling adaptive gameplay, intelligent NPC behaviour, and personalised content. These systems respond to player actions in real time, making games feel more dynamic and immersive. Large language models are enabling more adaptive NPC behaviour, including contextual dialogue and persistent memory.

EA’s Battlefield 6 team is also training AI agents and building robust testing systems that integrate designer feedback into iterative loops, ensuring gameplay-ready agents while bridging machine learning with practical production needs.

Hyper-personalisation and ARPU uplift. Machine learning-driven dynamic difficulty systems, personalised in-game store offers, and tailored content recommendations are becoming increasingly common. Early implementations have reportedly generated ARPU uplifts of more than 180%.

Anti-cheat and trust systems. Behavioural AI can detect cheating patterns at scale across millions of concurrent users. This is critical for live-service game retention and esports integrity, with Activision Blizzard and Tencent among the leading adopters.

How AI disrupts the gaming industry

1)      Lowering barriers of entry

AI compresses asset creation, animation, quality assurance, and coding from weeks into minutes. Smaller teams can increasingly produce content that previously required significantly larger development resources.. Smaller studios are narrowing the quality gap with major publishers in areas such as NPC richness and interactivity, competing increasingly on creative direction rather than sheer engineering resources. As a result, production barriers are genuinely falling, which in turn places pressure on incumbent valuations.

2)      The “Gameslop”

IP and AI are not always a case of 1 + 1 > 2. By automating asset pipelines, streamlining QA, and restructuring pre-production workflows, generative models and machine learning are fundamentally bending the R&D cost curve. However, this transition does not guarantee uniform profit expansion.

The democratisation of content creation tools is driving a massive supply-side explosion in game releases. Many of these easily produced AI-generated games are of low quality, causing players to become increasingly distrustful of AI-tagged titles. One survey showed that 85% of gamers hold negative attitudes towards AI in games.

Takeaway: Curation and craftsmanship remain the ultimate differentiators

AI can replicate technical execution, but it cannot replicate brand equity, franchise loyalty, or live-service network effects. As such, we believe large AAA studios remain well positioned to defend their competitive moats.

AAA studios represent the equivalent of blockbuster films — the highest tier of game production in terms of budget (often exceeding US$100 million), team size (frequently numbering in the thousands), and commercial expectations. GTA VI is estimated to have cost more than US$1–2 billion all-in, including marketing, making it potentially the most expensive entertainment product ever created. Red Dead Redemption 2 reportedly cost around US$540 million. These figures dwarf even major Hollywood productions.

Intellectual property is therefore critically important within the gaming industry. AAA studios are able to combine AI tools with proprietary data, established IP franchises, and large-scale distribution networks. At present, AI appears more likely to reinforce existing advantages in IP ownership, distribution, and scale than to dismantle them.

Cost savings can also be reinvested into even larger launches. Brand trust helps keep players away from low-quality “AI slop”. As lower production costs flood platforms with new titles, gaining visibility becomes harder than ever. Franchises such as GTA, FIFA, Call of Duty, and Pokémon benefit from decades of accumulated brand loyalty — something no amount of AI-assisted production can replicate overnight for a new entrant.

Meanwhile, network effects in multiplayer games create high switching costs. Fortnite, GTA Online, and League of Legends are communities, not merely games. Console platforms such as Sony, Nintendo, and Microsoft also apply stricter curation standards, effectively filtering out many AI-heavy low-quality titles and reinforcing AAA dominance on premium platforms.

Things to watch

The key development to monitor for this investment thesis is the emergence of the first wave of AI-native AAA studios — companies building entirely new franchises from the ground up with AI embedded at the core, rather than retrofitting AI onto legacy development pipelines.

"A genuine commercial breakthrough by an AI-native AAA studio would represent a meaningful signal that incumbent competitive moats are coming under greater pressure.

Until then, the available evidence continues to support the view that AI is strengthening the existing industry hierarchy more than disrupting it.

Studio	Parent	Known for
Rockstar Games	Take-Two	GTA, Red Dead Redemption
Naughty Dog	Sony	The Last of Us, Uncharted
Santa Monica Studio	Sony	God of War
Infinity Ward / Treyarch	Microsoft (Activision)	Call of Duty
EA Sports / DICE	EA	FIFA/FC, Battlefield
CD Projekt Red	Independent (listed: CDR.WA)	The Witcher, Cyberpunk 2077
NetEase Game Studios	NetEase	Naraka, Marvel Rivals
Tencent TiMi Studio	Tencent	Honor of Kings, CoD Mobile