TLDR
- Morningstar says artificial intelligence poses limited risk to the land-based gaming businesses of Aristocrat Leisure and Light & Wonder
- Licences, regulatory ties, and large installed machine bases protect the two major suppliers
- Share prices fell mainly due to concerns about digital businesses, not the strength of gaming machines
- Aristocrat is gaining market share while Light & Wonder is holding its position
- Smaller suppliers such as IGT and Ainsworth Game Technology face more pressure as AI use grows
Morningstar Equity Research says artificial intelligence poses a limited threat to the land-based gaming businesses of Aristocrat Leisure and Light & Wonder. The research firm points to licences, regulatory relationships, and large installed bases of leased machines as protection for these companies.
Investors have worried that AI could lower barriers to entry. That fear has weighed on share prices for both companies this year.
Morningstar says this concern overlooks the strength of the electronic gaming machine businesses at both suppliers. The firm believes the gap between strong and weak suppliers is actually widening.
Land-based electronic gaming machines make up most of the earnings for both companies. These machines also support a large part of Morningstar’s valuations for each business.
The research firm says these businesses benefit from leading market shares and long-standing customer relationships. Growing installed bases add further support.
Venue operators tend to be careful with floor space. They focus on revenue per machine, which makes them unlikely to hand space to unproven suppliers.
Machine performance depends on proven game titles that keep players engaged. Morningstar estimates Aristocrat and Light & Wonder together account for more than 60% of leased machines in North America.
Digital Business Concerns Weigh on Share Prices
Morningstar says the share prices of both companies have been overly shaped by sentiment around their digital businesses. This includes social casino and iGaming operations.
Aristocrat Leisure shares closed at AUD63.60 on the Australian Securities Exchange on Tuesday. That is down 12.7% from a 12-month high reached last August.
Light & Wonder shares closed at AUD134.00. That marks a drop of 26.6% from a 12-month peak of AUD182.50 set in January.
Morningstar explains that periods of optimism toward digital gaming led to higher valuations for both stocks. When that optimism faded, valuations fell across the wider business, including the more stable gaming machine earnings.
Smaller Suppliers Face More Pressure
Morningstar says Aristocrat has been taking market share while Light & Wonder has held its position. Smaller rivals, including IGT and Ainsworth Game Technology, have struggled to gain lasting ground in North America.
The firm suggests AI could widen this gap further. Aristocrat has spent about 12% to 13% of revenue on research and development, compared with 8% to 9% for Light & Wonder and about 7% for IGT.
Larger suppliers already hold mathematical models, intellectual property, and regulatory approvals. Morningstar says these advantages could let them use AI to produce more game ideas and content.
Morningstar names Aristocrat’s electronic gaming machine business as the strongest of the two suppliers. It points to franchises like Dragon Link and Huff N’ Puff as valuable intellectual property.
The firm expects AI to speed up game design and lower development costs. It does not expect AI to replace the expertise and approvals needed to build machines that perform well.
Morningstar also says land-based gaming is unlikely to be replaced by digital gaming. The number of electronic gaming machine locations in the United States grew from 16,489 in 2021 to 18,218 in 2026, even as iGaming expanded.
