Unity's stock becomes the latest victim of Google's AI ambitions

By Emily Bary

Google's new Project Genie prototype, which lets users simulate virtual worlds, has gaming investors very worried. But one analyst says their fears are overblown.

Google's new Project Genie will let users simulate virtual worlds and is available to subscribers of its $250-per-month AI Ultra package.

Google is wading into "dynamic worlds," and that's spooking investors in Unity Software and other gaming-related stocks on Friday.

At issue is Project Genie, an "experimental research prototype" that Google (GOOG) (GOOGL) says "enables the simulation of any real-world scenario - from robotics and modeling animation and fiction, to exploring locations and historical settings."

Investors seem worried it's a threat to traditional software companies that make products for game development. Shares of Unity (U) were tumbling 22% and heading for their worst one-day performance since they lost 37.1% on May 11, 2022, according to Dow Jones Market Data. The $13 billion company's Create business is used for the creation of about 70% of mobile games, according to a William Blair analyst.

Shares of popular gaming platform Roblox (RBLX) were down 12%, while shares of Take-Two Interactive Software (TTWO) were off 10%.

See also: Software stocks suffer steep selloff, widening the gap with hot chip stocks

The fears are an extension of a general question surrounding artificial-intelligence advancements: Can new AI tools really replace services from established providers?

William Blair's Dylan Becker is doubtful.

"Importantly, we believe these fears overlook the complexity and sophistication of Unity's engine, including similar AI capabilities embedded within its own platform over recent years, as well as the ability to build, run and monetize the full lifecycle of a mobile game in a single unified platform," he wrote.

Pricing is another thing to keep in mind. Project Genie is available only to Google AI Ultra subscribers, who are paying $250 a month.

"This is already a premium price to a Unity Pro subscription at $210 per user per month (which ... has a free solution for users until the $200,000 revenue threshold) despite Unity's platform depth and technical sophistication," Becker wrote.

When reached for comment, a Unity spokesperson referred MarketWatch to a LinkedIn post by Matthew Bromberg, the company's president and CEO, who wrote: "Rather than viewing this as a risk, we see it as a powerful accelerator."

Bromberg said that while "advances in large-scale 'world models' - whether developed by partners like Google or others - materially expand the frontier of interactive content creation," they also are "primarily editable through prompting, which limits the level of determinism and precision required for production-grade game mechanics.

"As a result, their outputs remain probabilistic and nondeterministic, making them unsuitable on their own for games that require consistent, repeatable player experiences," he added.

"Video-based generation is exactly the type of input our agentic AI workflows are designed to leverage - translating rich visual output into initial game scenes that can then be refined with the deterministic systems Unity developers use today," Bromberg continued. "We believe this represents a meaningful step forward for AI-driven development across the industry."

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-Emily Bary

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