Why It Matters
Understanding AI’s impact on gaming is crucial for investors and industry players because it could dramatically lower development costs, reshape competitive dynamics, and unlock novel game formats. As consumer spending on games continues to surge, the balance between cost savings and the need for compelling gameplay will determine which companies capture future growth.
Key Takeaways
- •Americans 15+ spend 22 minutes gaming daily.
- •2026 gaming spend projected over $275 billion.
- •AI could cut game development costs by over 40%.
- •Savings may reach $22 billion industry‑wide, but competition rises.
- •AI enhances productivity, yet core gameplay remains hard to automate.
Pulse Analysis
The episode opens with a stark reminder that Americans over 15 spend roughly 22 minutes each day gaming—more than they allocate to socializing, sports, or reading. This attention window fuels a market projected to exceed $275 billion in 2026, with studios reinvesting over $50 billion into development and operations. New AI tools promise to reshape the video game industry by slashing production costs, potentially cutting the $100‑plus‑million price tag of a typical AAA title by more than 40%, which could translate into $22 billion of industry‑wide savings.
While AI’s productivity boost is compelling, the hosts caution that savings won’t automatically become profit. Competitive pressure may drive studios to reallocate funds toward marketing and live‑operations, preserving the advantage of companies with strong IP, data, and distribution networks. Live‑ops, updates, and community engagement remain critical moats that AI cannot easily replicate, ensuring that established publishers retain a defensive edge even as smaller teams gain the ability to produce assets faster. The conversation underscores that AI will likely augment rather than replace human creativity, especially in crafting compelling gameplay loops that machines still struggle to model.
Looking ahead, the panel sees AI unlocking entirely new interactive experiences beyond cost reductions—much like smartphones once redefined gaming. By automating world‑building, character generation, and asset creation, developers can experiment with novel formats that were previously infeasible. This gradual integration mirrors past technological disruptions, suggesting the industry will evolve rather than be upended overnight. Ultimately, the prize remains the same: building games that captivate players and keep them coming back for more.
Episode Description
As AI changes the video game industry, Matt Cost, from Morgan Stanley’s U.S. Internet team, takes us through the game play and what could drive the next level of engagement.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Matt Cost, from Morgan Stanley’s U.S. Internet team.
Today – how new AI tools are reshaping the video game industry.
It’s Wednesday, May 27th, at 10am in New York.
We’ve all done it at some point. You think you’ll open your phone for just a few minutes. But end up in a game, a match, or a virtual world for much longer than you planned. Now, that window of attention is at the heart of one of the biggest battles in entertainment.
Americans over 15 years old spend about 22 minutes per day playing games – that’s more than they spend socializing, playing sports, or reading. And the next big shift in gaming may stem from who gets to create games and how they do it.
We expect consumers to spend more than $275 billion on video games in 2026. And the industry is reinvesting over $50 billion of that into game development and operations. But AI could cut that by nearly half.
Today, making a major game is expensive, slow, and labor-intensive. A typical AAA title – the gaming equivalent of a studio blockbuster – can cost hundreds of millions of dollars and take four years to build. More than 90 percent of that cost is people: so that’s developers, designers, artists, writers and many more.
But AI could change that math. New tools could increase productivity multiple times over, helping smaller teams do more in less time. Even after accounting for AI compute and asset-generation expense, we think that cost savings could exceed 40 percent. That’s over $100 million per game project. Across the industry, that could generate savings of roughly $22 billion.
But that money won’t just go straight to profits. Increased competition may erode those savings. And studios might put more money into marketing in response. So, AI could still meaningfully shift value across the gaming ecosystem.
The positives are clear. AI can speed up coding, asset creation, testing, and many other processes that are manual today. That’ll let studios spend less time on repetitive work and more time on higher-value creative tasks.
But it’s tough for newcomers to level up. AI does open the door for new players, but we think the industry looks more insulated from near-term disruption than the market fears – especially for companies with strong IP and advantages in live operations, data, and distribution.
AI can help generate worlds, characters, and digital assets, but great gameplay is harder. Gameplay is the feel, the challenge, the feedback, and the fun. Models still struggle to measure that, let alone deliver it consistently.
Live operations are another moat for established gaming companies. Many successful games don’t end at launch. Teams run them for years through updates, events, and passionate communities. That skill is hard to copy. And often it determines whether a game becomes a lasting franchise or fades quickly. So gradual integration of AI looks more likely than overnight replacement.
Finally, the largest opportunity may still be on the horizon. Beyond lowering the cost of making today’s games, AI could unlock entirely new types of interactive experiences that didn’t exist until now. And the game industry has been through this process before, when new technologies like smartphones changed games forever. But ultimately, the prize is still the same: building something that people can’t stop playing.
Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.
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