Shares in major video-game developers tumbled last week amid fears that Google’s new AI tool Project Genie could disrupt the industry – but analysts say the panic may have been overblown.

Unity Software Inc., Roblox Corp., and CD Projekt SA all saw sharp declines after Google unveiled the AI prototype, which allows users to generate playable 3D worlds using text prompts or images.

The tool can create characters and environments, though its current capabilities are limited, offering only brief playable experiences.

mBank SA analysts said the selloff ignored these limitations and argued that AI tools like Genie are more likely to benefit large studios than threaten them.

“Given the current usability of Project Genie, we regard Friday’s selloff in game-developer stocks as an unjustified overreaction,” said mBank analyst Piotr Poniatowski. “Counterintuitively, we believe AAA game developers will benefit most from such tools.”

Poniatowski noted that while smaller studios may face increased competition from AI-driven solo projects, larger developers with established franchises and immersive storytelling are unlikely to see their value proposition diminish.

Wedbush analyst Alicia Reese echoed this, adding that existing platforms remain well-positioned to compete.

The selloff has shown signs of reversal. Unity and Roblox rebounded in premarket trading on Monday, although CD Projekt continued to slide in Warsaw for a third consecutive session. European gaming stocks remained under pressure, with Ubisoft falling 2.9%.

Project Genie’s promotional videos hint at a future surge in new games and solo projects, potentially expanding the gaming landscape rather than threatening major studios. Analysts say investors may be overestimating the short-term impact of AI on the industry.

As AI tools become more advanced, the key takeaway for the market is that while smaller developers could feel the effects of automation, the biggest names in gaming are likely to remain competitive.