Amazon Luna Levels Up—But Can It Catch Xbox?

Amazon (NASDAQ:AMZN) absolutely knocked one out of the ballpark this quarterly earnings season. And while it’s arguably been the most magnificent performer of big tech earnings, investors shouldn’t sleep on the year-to-date laggard, as it looks to kick off its next leg higher. Undoubtedly, the third quarter results were far better than expected, thanks in part to unforeseen strength in its mature Amazon Web Services (AWS) business.

And while the burst of cloud momentum could signal a sustained acceleration into the AI age, I think investors shouldn’t forget about the consumer-facing business, as it leverages next-generation cloud technology to take on new markets. One such market that Amazon might be looking to disrupt is video games, as it looks to overhaul its Luna game-streaming service, which has been a very niche product that many Prime users may be completely unfamiliar with.

Amazon Luna is improving, but what’s the deal with recent game studio closures?

Undoubtedly, after the wave of layoffs and closure of its game development studio behind New World, questions linger as to where Amazon goes next with gaming and whether it can be a gaming presence that can clash with the likes of Microsoft (NASDAQ:MSFT) Xbox, which has also undergone significant shifts of late. Undoubtedly, the Xbox Game Pass subscription has been viewed by many as one of the best values in gaming, at least until the company recently hiked prices.

While it will be interesting to see how many gamers stick around, especially as ambitious new titles, such as the latest Call of Duty, land on the service later this month. And while Microsoft hinted at offering more value for the price increases, it’s not yet clear what exactly that means.

Either way, the game subscription model (and the rise of cloud gaming) might be stickier than intended. For now, though, it’s unclear just how Amazon can compete as it shuffles its cards around while introducing a few new titles to its niche Luna cloud-gaming service. After such studio closures, Amazon might need to rebuild and reassess as it considers where it’s headed next.

The Luna streaming service is also quite well-polished

While the Luna service runs really well on the back of Amazon’s impressive cloud technology, there is just one problem: the service isn’t quite as deep with the titles to be a serious force in gaming. And with the recent sweeping layoffs and closure of its San Diego and Irvine studios, which seems to suggest Amazon is steering away from AAA games and towards more casual games or licensing of titles, I do wonder if Amazon Luna has what it takes to capture the market that the Google Stadia left behind when it shuttered its game-streaming services a few years ago.

Google may have been too early to the game streaming market, and while a bit of a void has been left behind, I think cloud-based game streaming could be about to enter its prime (no pun intended), as cloud technology makes it possible to reduce latency while raising the bar on resolutions.

And with Xbox recently touting big upgrades to its own streaming service, including 1440p streaming for higher-paid tiers, while rumors swirl around a hybrid PC-console with deeper cloud integration as its next-gen hardware, perhaps the opportunity has come for Amazon to make a bigger splash in gaming.

Add the rise of generative AI into the equation, which could lower costs on original content production, into the equation, and it certainly does seem like a good time to make a bigger splash into gaming. Arguably, the technology is there, and a larger global market is as well. But when it comes to such services, content is king. For now, I don’t think AI-enhanced casual games are going to be enough to level up Amazon Luna.

The bottom line

At this juncture, game streaming is a spend money to make money kind of business. And without more high-quality original AAA content, I just don’t see Luna as anything more than a small perk for a small number of Prime users. It’s a niche product, but one that I think could evolve into something so much more if Amazon were to be more willing to spend.

If Amazon rebuilds after recent studio closures or acquires a video-gaming giant outright (I think going for Take-Two Interactive (NASDAQ:TTWO) is a move that makes a lot of sense), Luna might have a shot to catch up with Game Pass one day. Until then, the so-called Netflix (NASDAQ:NFLX) of gaming in Xbox Game Pass looks untouchable, even after big price hikes.