As such, it’s time to separate the potential winners from the likely losers from Alphabet’s latest moonshot.
Certain Semiconductor Stocks
As was seen with the stock reaction on Tuesday, semiconductor stocks such as Advanced Micro Devices (AMD) will underwrite the ambitious graphics performance targets that the Stadia effort is setting its sights on.
Alphabet announced during Tuesday’s Game Developer Conference that it will utilize AMD GPU for the new cloud-based gaming platform citing the strong relationship between the two companies.
“We’ve worked closely with AMD for years on this project, leading to the development of a custom GPU with leading-edge features and performance for Google Stadia,” said Google’s head of Stadia development Dov Zimring. “Google and AMD share a commitment to open-source with expertise in Vulkan, open-source Vulkan GPU drivers, and open-source graphics optimization tools.”
Analysts have speculated that such a close relationship will help extend to use of AMD’s EPYC servers for datacenters, picking up on the next generation from their Radeon chips, to drive the cloud effort.
“We think the fact that AMD and Google appeared to have worked together to produce a custom GPU for the Stadia service, AMD’s CEO presence at the Stadia announcement, and the conspicuous absence of Intel (INTC) from the announcement, suggests a close relationship between AMD and Google, and the increasing likelihood that Google will ultimately announce that it will use AMD EPYC 2 server MPUs,” Jefferies analyst Mark Lipacis speculated. “We would view a server MPU announcement between AMD and Google as being more important than a GPU announcement for cloud gaming because the latter market is nascent and the former is a $25 billion a year market.”
Considering AMD adversary Nvidia Corp. (NVDA) is anticipating its own streaming platform, GeForce, to reach over one billion users, the opportunity on both ends is certainly appetizing for investors.
Video Game Developers
There is also significant opportunity for video game developers that would be poised to provide the content for the Netflix-like platform.
First, it would widen their consumer base as the barrier of consoles is removed by the cloud.
Seamless delivery of games to gamers should open the market for releases from companies such as Take-Two Interactive Software (TTWO) and Activision Blizzard (ATVI) . It also extends their offerings to emerging markets where cost prohibitive consoles might be a barrier to entry.
Further, Alphabet announced only one game release, Doom Eternal, in its presentation on Tuesday.
While it highlighted Ubisoft (UBSFY) as a partner and its desire to develop its own games in the long run, many analysts believe it will almost certainly need to lean on the sector’s biggest names.
To be sure, if Google is to cut them out in the long run with the development of its own games through Stadia’s own studio, the short-term benefit could quickly fade from memory.
Console and Cloud Gaming Competitors
While exclusivity of certain games like Pokemon at Nintendo or Spider-Man on Sony’s PlayStation can act as a bit of a moat and force many to buy consoles for the time being, the shift toward cloud-based gaming will likely erode the demand for the offerings.
As has been seen with Epic Games’ Fortnite, availability helps breed popularity, not the other way around.
However, it extends beyond the hardware producers that could be stung and onto the companies already angling for cloud supremacy such as Microsoft (MSFT) , Amazon (AMZN) , Apple (AAPL) , and the aforementioned Nvidia.
“As far as the streaming aggregators other than Google, there has already been significant “chatter” in the marketplace about this group potentially including players like Amazon (AMZN) (Twitch & AWS), Microsoft (Xbox – xCloud & Azure), Apple (AAPL) (iTunes & internally developed cloud tech), Verizon (VZ) (on Nvidia Shield), and others,” Piper Jaffray analyst Michael Olson commented. “The endgame is streaming.”
Of course, a much more crowded space tempers the ability of each company to capitalize on the eventual endgame. Further, the ubiquity of Google Chrome among internet users (controlling an over 60% market share) and the massive reach of YouTube make Alphabet a proverbial 800-pound gorilla in the space.
Only Amazon, with the strength of Twitch, could really claim to have the instantly accessible user base that Google already commands.
Certain Semiconductor Stocks
Lastly, if the Alphabet effort in streaming is indeed successful, it would appear that Intel and Nvidia would be left out in the cold in favor of AMD.
Intel loses simply for the fact that its CPUs appear to not be in use for the project, or at the very least were not announced as part of the project in the same vein as AMD. That hurts the company that was at one time the undisputed king of semiconductors.
The effort also clearly poses problems for Nvidia, which will not only lose out to AMD in terms of demand for its chips by a potentially massive customer in Alphabet, but will compete with Google directly for gamers to utilize its own cloud-gaming platform.
A Grain of Salt
Of course, Google has announced initiatives in the past that promised to be game changers only to fall flat.
Google Glass, Google+, and Google Nexus all come to mind immediately.
So, while the video game effort holds great opportunity for Google and the potential for great disruption to its competitors, it is far from guaranteed to succeed.
(Alphabet, Amazon, Nvidia, Apple, and Microsoft are holdings in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells GOOGL, AMZN, NVDA, AAPL or MSFT? Learn more now.)
How Much Money Will I Need to Retire?
Want to learn about retirement planning from some of the nation’s top experts? Join TheStreet’s Robert “Mr. Retirement” Powell live in New York on April 6 for our Retirement Strategies Symposium. For a limited time, tickets are available for $99 for this full-day event. Check out the agenda, learn about the speakers and sign up here.
Get an email alert each time I write an article for Real Money. Click the “+Follow” next to my byline to this article.