In January, U.S. stock markets rose. The S&P 500 (SPY) gained 1.47%. However, sub-sectors are breaking down severely.
Last Friday, Unity Software (U) lost 24.22% and is down by 34.12% in 2026. Roblox (RBLX) is in a downtrend, losing 56.33% from its 52-week high. Take-Two Interactive (TTWO) trades at lows not seen since last August.
Markets panicked over Google’s impressive AI model. The firm revealed an AI game design called Project Genie. Looking into the details of the model suggests that the sell-off is overdone.
Project Genie may generate an interactive world in only a minute. But once the model supports infinitely playable open worlds, by generating them on the fly, that could threaten the AAA gaming market.
Notable gaming stocks investors should watch include Tencent (TCEHY). The firm has a diverse portfolio in the sector. Nexon (NEXOY), based in South Korea and Japan, is also an attractive holding. Sony (SONY) is also an attractive holding.
To hedge this opinion, Alphabet’s stock is attractive. It trades at a 33 times price-to-earnings ratio. This is cheaper than holding Take-Two stock but nearly double the valuation of SONY stock. Nintendo (NTDOY) trades at a premium. But after trading near a 52-week low, the market likely priced in the AI risks.
