Investing.com — Morgan Stanley said Google’s launch of its Genie 3 world model has intensified fears of disruption across the video games industry, after shares in several major companies slumped following the announcement.
Analyst Matthew Cost said the launch “has sparked fears that world models could disrupt how video games are produced,” with potential implications for Unity, Roblox, Take-Two Interactive and AppLovin.
The model, released to subscribers on 29 January, prompted a sharp market reaction, with Unity down 24 percent, AppLovin off 17 percent, Roblox falling 13 percent and Take-Two losing 7 percent.
Morgan Stanley said Genie 3 has become “a key debate for the game industry this year.”
“Long term, incumbents face two paths: adapt existing tools and frameworks to integrate AI or risk being disrupted by these new technologies,” stated Cost.
Under the first scenario, incumbents integrate AI tools into existing engines, such as Unity and Roblox Studio, to automate tasks like coding and asset creation.
Morgan Stanley believes the second scenario, in which world models replace current technology, looks simpler in theory but carries major technical obstacles.
The bank argued that while world models can already generate “playable, video game-like worlds,” they suffer from structural limitations.
The analysts said key issues, such as “determinism, memory, and updates,” may prove difficult to resolve. Because world models are probabilistic rather than deterministic, they lack a central “source of truth,” meaning multiple players could see inconsistent game states.
Cost said these challenges suggest Scenario 1 is more likely, with companies using AI to enhance production while “leveraging existing solutions” rather than replacing established engines outright.
Related articles
Video game stocks: Morgan Stanley weighs impact of Google’s Genie 3
Morgan Stanley survey shows electronics spending intentions are worsening