Morgan Stanley reduces price targets on GVC Holdings (OTCPK:GMVHF), Playtech (OTC:PYTCF) and The Stars Group (TSG) to account for the risk that superhuman artificial intelligence will disrupt online poker.
Analyst Ed Young and team note that computer scientists from Carnegie Mellon University developed an AI system that is "stronger than human professionals" in the most popular version of poker. They note the code has not been released in part because it would have a "serious impact" on the integrity of online poker as it stands. The MS analysts then give all online poker players something to think about. "The AI blueprint strategy was developed for a cloud-computing cost of just $144 in 8 days, runs on normal computers, plays twice as fast as professional players and could be adapted for any poker variant," they warn.
The conclusion is that a reduced overall confidence in online poker could pose a risk to earnings streams in the future.
Price targets on London-traded GVC Holdings and PlayTech are reduced by 2% and 4%, respectively, but still factor in plenty of upside. The price target on Stars Group goes to $17 from $18, which also still implies shares will go higher. 888 Holdings (OTCPK:EIHDF) wasn't mentioned by Morgan Stanley, but presumably is in harm's way. The AI threat to online poker is only a very minor factor for other casino-related names such as William Hill (OTCPK:WIMHF), MGM Resorts (NYSE:MGM), Boyd Gaming (NYSE:BYD), Penn National Gaming (NASDAQ:PENN) and Wynn Resorts (NASDAQ:WYNN).
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