Gaming Stocks Face Early 2026 Challenges Despite Solid Industry Fundamentals

Gaming Stocks Show Weakness Despite Positive Industry Factors

In early 2026, gaming stocks have struggled to gain momentum, even though the gaming industry’s overall trends remain strong, according to industry analyst Barry Jonas from Truist Securities. The challenges in stock performance come amid robust results from regional casinos outside of Las Vegas and encouraging growth in digital gambling sectors.

DraftKings Stands Out Ahead of Q4 2025 Results

Barry Jonas highlighted DraftKings as his preferred choice leading into the fourth-quarter earnings results of 2025. He noted a 10% increase in user betting volume, while the company’s revenue surged by 40% compared to the same period in 2024. Following this strong performance, Jonas raised his cash flow projections for DraftKings from $223 million to $325 million, surpassing Wall Street’s estimates of $255 million.

Similarly, Flutter Entertainment, the parent company of FanDuel, experienced an upward revision in its fourth-quarter cash flow forecast, increasing from $323 million to $340 million. Its international operations are expected to generate $919 million, above the consensus of $898 million.

Despite these improvements, stock prices are likely to be influenced more significantly by the outlook and guidance companies provide for 2026, as well as broader discussions surrounding prediction markets. Jonas projects DraftKings to generate $940 million in cash flow for 2026, while Flutter is expected to reach $3.7 billion.

Insights from New York’s Online Sports Betting Market

Jonas drew attention to recent online sports betting data from New York as a word of caution. In January, wagering volume on NFL games decreased by 3%, even though winnings increased by 6%, resulting in a high hold rate of 10.2%. At one point, a single week reached a 17.6% hold, producing $96 million in revenue from $545 million wagered.

He suggested that some investors might be overestimating the impact that prediction markets have on traditional sports betting activities. The slower growth in betting volume observed in New York may have led investors to believe that prediction markets are cannibalizing traditional betting more than they actually are.

Prediction markets continue to be a prominent topic, especially in states like California, Texas, and New York, where there is a strong following of sharp bettors and college football wagering.

Regulatory changes, ongoing legal cases, and new leadership within regulatory bodies could influence the future of prediction markets. However, at present, the fees generated from these markets represent only a small fraction of the overall gambling industry.

Jonas also cited adverse weather conditions in January and early February as factors likely to dampen short-term growth prospects. Despite these near-term headwinds, he remains optimistic about the potential for growth in the coming months due to the underlying strong industry themes.