Gaming Consoles Face Threat of Extinction as Cloud and AI Boom

Games streamed over the internet will grow to a $38 billion market by 2035 and may eventually kill off the dedicated video-game console as a mass-market product, according to research from Bloomberg Intelligence.

The proliferation of artificial intelligence and data centers for cloud computing will accelerate the global reach of game streaming and improve unit economics, the report led by BI analyst Nathan Naidu said. AI plays a dual role, as it’s seen both contributing to cost reductions and helping provide the infrastructure for streaming services. Early into the next decade, advertising is also seen as a key growth driver that will unlock access to users in emerging markets.

That shift will increasingly relegate the familiar home console to a niche segment, according to the research. As AI ramps up game complexity, the need for ever more powerful hardware would be more effectively handled by streaming content from data centers than designing and releasing entirely new consoles every few years.

Japan’s Nintendo, which has only treated game streaming as peripheral to its strategy, appears poorly positioned for this change, while rival Sony is seen faring better with its more established PlayStation Plus ecosystem and PlayStation Portal for remote game access.

Elsewhere, Microsoft, Nvidia and Tencent will benefit from their investments in cloud infrastructure, Naidu said. Microsoft is expected to maintain a roughly 40% share with its Xbox Cloud Gaming, a service that notched up an estimated 220 million hours of streamed gameplay in the September quarter. Nvidia, as the designer of the most sought-after graphics processing units (GPUs), has the technical edge with its GeForce Now, and Tencent similarly is seen as a tech leader in the China ecosystem. GPUs are the most effective hardware for both AI and 3D graphics workloads.

“At present, surging demand for AI data-center services is putting upward pressure on computing prices. In the final years of this decade, however, we believe the data-center build-out will create surplus GPU capacity,” Naidu said in the report. “More excess capacity would increase competition and push computing prices lower, improving economics for cloud-gaming operators.”

Video games are among the industries most exposed to AI. The technology used to create them shares its underpinnings with AI tools, and an industrywide need to cut costs has put pressure on all companies to reduce headcount and focus on efficiency. Epic Games Inc. Chief Executive Officer Tim Sweeney this week said his company is “moving developers around to retool for maximum AI acceleration.” His company provides the Unreal Engine, which is widely used to build 3D games.

“Game hardware is shifting toward a narrower market of enthusiasts. Consoles will remain relevant for avid players seeking premium performance, and perhaps among collectors in the same way that record players continue to be used for music,” Naidu wrote. “But consoles’ role is moving from video-gaming’s main gateway to just one of many access points – and a relatively uneconomic one at that.”