The metaverse, a concept that was highly touted in early 2022, has lost some of its prominence. Instead, cloud gaming has gained traction, offering gamers a wireless, low-latency experience through 5G networks on various devices, without the need for dedicated hardware like Xbox or PlayStation. The cloud gaming market reached $3.2 billion in 2022 and is projected to grow at a robust average annual rate of nearly 43.6% to $40.8 billion by 2029.
Microsoft's proposed $69 billion acquisition of Activision Blizzard, known for popular games like Call of Duty and Candy Crush, faces regulatory scrutiny. While the European Union (EU) has approved the deal, American and British regulators have expressed concerns about potential competition issues. However, the emergence of cloud gaming as a significant industry could play a crucial role in determining the outcome of the acquisition.
The metaverse, a concept that was highly touted in early 2022, has lost some of its prominence. Instead, cloud gaming has gained traction, offering gamers a wireless, low-latency experience through 5G networks on various devices, without the need for dedicated hardware like Xbox or PlayStation. The cloud gaming market reached $3.2 billion in 2022 and is projected to grow at a robust average annual rate of nearly 43.6% to $40.8 billion by 2029.
Microsoft secured approval from the EU by making concessions that ensure rival companies would have continued access to Activision's titles on cloud gaming platforms. However, U.S. and U.K. regulators are concerned that the deal may stifle competition, particularly in the cloud gaming industry.
While the final decision rests with sixteen governments, the Federal Trade Commission (FTC) and Britain's Competition and Markets Authority (CMA) have opposed the deal. Microsoft's concessions, as approved by the EU, aim to address these concerns. The FTC argues that the acquisition would harm consumers and limit competition, while the CMA believes it would eliminate a free and competitive market. The outcome remains uncertain, and Microsoft must find a way to sway the opposition from the FTC and CMA.
Investors' sentiment regarding Microsoft stock is tied to the likelihood of regulatory approval for the Activision Blizzard deal. However, there is a significant revenue potential for Microsoft in the form of ChatGPT, estimated to contribute $40 billion to the company's top line. This would constitute a substantial 20% increase over Microsoft's annual revenue of around $208 billion. In comparison, Activision Blizzard's revenue for the same period was $8.1 billion, representing approximately 4% of Microsoft's revenue.
In the event that the Activision Blizzard deal falls through, Microsoft would have $69 billion in cash available. Investing this amount in expanding its AI business, particularly in relation to ChatGPT, could be a favorable alternative for Microsoft investors. The decision on whether the acquisition is approved will have implications for Microsoft's stock, but the revenue potential from ChatGPT presents a promising investment opportunity regardless.
