Why the Pandemic – and the E-Sports Trend – Just Supercharged a Favorite Wealth Play

Thanks to the coronavirus pandemic, this year's sports seasons - pro and college - tumbled like dominos.

When the NBA announced it would suspend its season, the NCAA basketball "March Madness" tourney had actually started (St. John's and Creighton played a full half). The NHL stretch run was poised to be among the most exciting in years.

Major League Baseball players were playing Grapefruit League games when the season was put on hold and players sent home (initially an act of mercy since my team, the Pittsburgh Pirates, was as lousy as expected). The PGA canceled a slew of events and said the Masters in Augusta was postponed.

NASCAR launched its season, ran its first four races - including its hallmark Daytona 500 - said it would continue without fans, and then reversed course and postponed events until further notice. And the 2020 Summer Olympics were postponed - they'll now be played in 2021.

You don't fully realize just how important something is in your life until it's taken away. And sports of all types fit the bill. We watch sports on TV, stream them on our phones, watch them live with friends, play them ourselves, watch our kids play, and often coach them, too. And the hardcore fans among us read about them - incessantly.

When something like that is taken away - especially when it's taken away instantly - well, it creates a dark chasm that's impossible to fill. I mean, how many "NFL mock draft" stories, videos, or podcasts can you handle?

But something very interesting just happened as a result of this "sports outage." One pro sport took a flier, conducted a broadcasting experiment, and ended up with a smash hit on its hands. And that "hit" has made me more confident than ever about one stock to buy for your long-term portfolio - right now.

Let me share the story of this "experiment," the billion-dollar trend it ignited, the name of the stock - and why this spotlights a hefty upside for this tech firm...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

The Hottest "Sport"

The coronavirus sports outage has created a quandary for broadcasters, advertisers, and fans.

Bereft of content, some sports channels are airing "classic" games, which is kind of cool - except that I already know how the '79 World Series between the Pirates and the Baltimore Orioles turned out (and it's a painful reminder that those two teams used to be good).

But an interesting thing happened amid the sports blackout: As an experiment, NASCAR, FOX Sports, and a company called iRacing teamed up to broadcast a "virtual" stock-car race on FS1 a few weekends ago. The race, billed as a "pro invitational," included a bunch of current NASCAR drivers, a few popular retired racers - including Dale Earnhardt, Jr. - and the regular announcers, including Mike Joy and Hall of Fame driver Jeff Gordon.

This race spotlighted the potential for a new competitive venue folks refer to as "e-sports" - an extension of the video games that people play at home. These "virtual" competitions often include professional players and can be broadcast or streamed to a viewing audience.

Proponents have long believed the e-sports venue has a multibillion-dollar potential, but the category hasn't yet "blown up," in the parlance of the digerati.

That just changed.

You see, that first NASCAR iRace - held on March 22 at a "virtual" Homestead Miami Speedway - drew a stunning 903,000 fans on the FS1 cable channel, according to Nielsen Media Research.

That made it the highest-rated TV e-sports program - ever, according to FOX Sports: It eclipsed the 770,000 viewers Mortal Combat brought to The CW back in 2016. And that's with no advanced promotion.

It wasn't just the viewership number that labeled this experiment as a winner. Talk of the race blew up on social media (with 217,300 Twitter interactions and 912,500 video views, that race was the top social TV program of that Sunday).

Sponsors surged in. And NASCAR created what it's calling the eNASCAR iRacing Pro Invitational Series, a multi-week racing series that will feature such current pros as Denny Hamlin and Chase Elliott - and they're committed to running the races until real racing returns.

The story gets better still.

NASCAR followed up the next week with a March 29 iRace at the "virtual" Texas Motor Speedway, where the real race had been slated before the hiatus.

On March 22, NASCAR and FOX Sports set an e-sports viewership record. On March 29, they broke it. A total of 1.339 million viewers tuned in - nearly 1% of everyone watching TV that Sunday. The numbers topped those of some real-world NASCAR events.

Folks, we've witnessed the future of e-sports. And it's bigger than ever.

The New Billion-Dollar Market

Before this pandemic shut sports down, noted e-sports researcher Newzoo forecast that revenue from this digital venue would hit $1.56 billion in 2023 - a 14.9% compound annual growth rate (CAGR) from the estimated $776.4 million in 2018.

About 75% of that revenue will come from media rights and sponsorships, Newzoo says. That total doesn't include broadcasting platform revenue - the subscription fees and advertising dollars the "broadcasters" will collect as a result of the content.

The iRacing success - coupled with behavioral changes brought on by the pandemic - should accelerate adoption.

Here's what Rich Greenfield, entertainment industry analyst at LightShed Partners, said about the way the pandemic is revving up the streaming trend: "This is like putting lighter fluid on things - [a huge] acceleration in terms of trend."

The Best Stock to Buy Now

There will be definite ways to cash in on this.

But there's one company in particular that stands to be a major beneficiary. It's one of my favorite stocks. Indeed, it's on my "Wealth-Builders Shopping List" in my Private Briefing advisory service.

I'm talking about Nvidia Corp. (NASDAQ: NVDA), a chipmaker I've described as "a high-tech octopus" because its tentacles reach into so many different businesses.

Nvidia pitches itself as a "visual computing" or "graphical computing" company - meaning its semiconductors and related technology can be used to crack tough problems. The firm's core technology - graphics chips - found its first big audience in the video gaming market.

But here's the thing: Name a high-growth tech market - any Big Tech opportunity - and Nvidia is almost certainly part of the "leadership club."

Indeed, revved-up versions of Nvidia's core "know how" were easily adapted to other processing-hungry growth opportunities, including:

  • Data centers - the business that's supercharged the growth of Amazon.com Inc. (NASDAQ: AMZN) and Microsoft Corp. (NASDAQ: MSFT).
  • Artificial intelligence - the "special sauce" that will open up the next wave of high-tech innovation.
  • Virtual reality - the "digital alternate universe" know-how that will artificially transport you to any spot around the globe, or into pretend realms, with a real-world feel.
  • Driverless vehicles - a "market of the future" that could be accelerated by the coronavirus pandemic.
  • Cryptocurrencies - the digital currency that naysayers keep damning, but which isn't going away.
  • And now e-sports - another "future" market that may be arriving ahead of schedule.

AI, VR, payment systems, data-center storage, and gaming all "feed into the e-sports opportunity" - a kind of viewable gaming, but on a super sophisticated level.

Gaming will thrive over the long haul for many reasons: advances in smartphones and mobile computing, immersive interactivity aided by VR, payments, and the looming rollout of speedy 5G networks.

And it'll get a running start: Expect a rollout of new gaming consoles later this year - boosting demand for more processing power and faster chips. And the coronavirus pandemic could cause folks to become more interested in multiplayer online gaming - where players connect via the Internet to compete against each other from the safe social distance of their own homes.

This new surge in gaming is already driving demand for more powerful gaming laptops. The surge in e-sports like iRacing will only accelerate that trend.

Running the Numbers

In the fourth quarter, Nvidia controlled 68.9% of the market for so-called "discrete" graphical processing units (GPUs), the key "ingredient" for gaming-oriented computer graphics cards. It also dominates the high-end slice of this market, where profit margins are the greatest.

Not surprisingly, companies that spec out iRacing "rigs" recommend Nvidia components as the top performers.

Gaming revenue - about half of Nvidia's sales - has risen from just over $4 billion in fiscal 2017 to more than $5.5 billion in fiscal 2020.

Nvidia's RTX GPUs, which debuted in 2018, possess AI properties and allow for real-time "ray tracing," a technology that elevated the images in video games and related applications to a level equal to or better than movies.

This technology - really in its formative stages as a revenue generator - is being "seeded" into the company's other businesses, too.

"It's super clear now that ray tracing is the most important new feature of next-generation graphics," Nvidia CEO Jensen Huang told investors during its most recent earnings call. "We have 30 - over 30 - games that are - that have been announced, 11 games or so that have been shipped. The pipeline of ray tracing games that are going to be coming out is just really, really exciting."

And "really exciting" is how I'd also describe this stock. That's why it remains one of my favorites.

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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