Microsoft and Sony Lead the AI Revolution in Gaming Industry, Says Morgan Stanley

According to a recent report by Morgan Stanley, game platforms such as Microsoft’s Xbox and Sony’s PlayStation are the most clear-cut beneficiaries of AI adoption in the gaming industry. The analysts, led by Matthew Cost, wrote that platform companies are more insulated from the risks of disruption posed by artificial intelligence, and will likely become the primary means for distributing AI tools to developers and players.

The report also stated that AI offers the industry a chance to overhaul a business model that has become bloated and formulaic in some cases. Game companies are adopting and developing AI tools in response to escalating costs and stagnant product prices. The analysts estimated that AI could lower the cost of making and operating top-tier “AAA” games by up to 15%, while also improving the quality and variety of gameplay.

Microsoft and Sony Lead the AI Revolution in Gaming Industry, Says Morgan Stanley
Microsoft and Sony Lead the AI Revolution in Gaming Industry, Says Morgan Stanley

Larger Publishers to Benefit More from AI, Smaller Ones May Suffer

Morgan Stanley sees a clear AI bull case for larger AAA game publishers like Ubisoft, Nexon and Take-Two Interactive. The latter, which owns popular franchises such as Grand Theft Auto and Red Dead Redemption, could see a potential 10% earnings lift from lower costs due to AI, according to the report. The analysts also noted that larger publishers have more resources and expertise to leverage AI for creating immersive and realistic worlds, characters and narratives.

On the other hand, smaller publishers such as Playtika may benefit the least from AI and may suffer from lower barriers to entry, the report said. The analysts warned that AI could increase competition in the gaming market, as new entrants and indie developers could use AI tools to create high-quality games at lower costs. The report also suggested that smaller publishers may face challenges in retaining and attracting talent, as AI could reduce the demand for certain skills and roles in game development.

AI Is Rewriting the Rules of $200 Billion Gaming Industry

The gaming industry is expected to generate more than $200 billion in revenue by 2023, according to Newzoo, a market research firm. The industry has been growing rapidly in recent years, driven by the rise of mobile gaming, cloud gaming, esports and streaming services. However, the industry also faces several challenges, such as increasing development costs, piracy, regulation and saturation.

AI is seen as a key technology that could transform the gaming industry in various ways, such as:

  • Enhancing game design and development: AI could help developers create more diverse and dynamic game worlds, characters and stories, as well as optimize game performance and quality.
  • Improving game experience and engagement: AI could enable more personalized and adaptive gameplay, as well as generate new content and modes for players.
  • Expanding game accessibility and reach: AI could make games more accessible and inclusive for different audiences, as well as facilitate cross-platform and cross-language interactions.
  • Innovating game business models and monetization: AI could enable new ways of generating revenue from games, such as subscription-based services, dynamic pricing and advertising.

The Morgan Stanley report highlighted some of the leading companies that are using or developing AI tools for gaming purposes, such as Microsoft, Sony, Unity, Roblox and Tencent. The report also mentioned some of the emerging startups that are applying AI to gaming domains, such as, which creates realistic voice skins for online games;, which creates interactive avatars for social media platforms; and, which automates game environment creation.

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