Activision is top non-FAANG tech stock with new Diablo and Call of Duty games in the pipeline, says Morgan Stanley

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  • Morgan Stanley on Thursday named Activision Blizzard a top pick for 2022 among non-FAANG stocks.
  • The investment firm said the company’s pipeline of upcoming games should help drive the stock up by nearly 50% from current levels.
  • Morgan Stanley addressed upcoming releases as Activision Blizzard is embroiled in a sexual harassment lawsuit in California.
  • See more stories on Insider’s business page.

Upcoming games for the Call of Duty and Diablo video-game franchises will be key to driving Activision Blizzard stock by up nearly 50% from current levels, Morgan Stanley said Thursday.

The investment bank called itself “aggressive buyers” of Activision shares, which are down so far this year, and labeled the stock as a 2022 top pick outside of the FAANG group of technology sector heavyweights: Facebook, Amazon, Apple, Netflix, and Google. Activision Blizzard shares have lost about 13% since the start of the year through Wednesday’s session.

Its base case call is for the stock to increase to $120, which would be a 48% increase from Wednesday’s closing price of $80.81.

“We look to September where we hope for continued favorable “Call of Duty: Vanguard” reviews, hopefully positive reviews on “Diablo II: Resurrected” leading to strong sales around the 9/23 launch … setting the stage for investors to begin to better appreciate the pipeline potential and path to $4.00+” of per-share earnings, said Morgan Stanley analyst Brian Nowak in a research note.

Activision Blizzard joins Uber and Compass, a real estate technology company, in Morgan Stanley’s list of top non-FAANG picks after addressing key investor debates surrounding each stock.

For Activision Blizzard, a major issue is a sexual harassment lawsuit filed against the company by the state of California in July following a two-year investigation. Several Activision executives have left the company, including J. Allen Brack, who was the head of Diablo studio Blizzard Entertainment.

Morgan Stanley said it remained optimistic about the company’s pipeline with the Blizzard Diablo and Overwatch franchises on track for new releases in 2022 and 2023. It said game development teams are large, often with hundreds of people, and that those upcoming games specifically have been in development for years.

“In our view, this speaks to how a significant number of developers would need to leave in order to meaningfully derail the development process.”

As well, Activision Blizzard earlier this month said the June launch of Blizzard’s Burning Crusade Classic marked the start of what it plans to be a significant 18-month period for content releases. The investment bank said Activision’s outlook increased its confidence that either “Diablo IV” or “Overwatch 2” are set for release in 2022.

The firm also foresees the Call of Duty franchise maintaining its leadership position even in the face of headwinds of lower engagement as more businesses and activities open up during the ongoing coronavirus pandemic.