Gaming is roughly a $200B market in 2025. It is growing at a 15% CAGR. 3.6B people, i.e., approximately half the world’s population, played video games in 2025. This large industry is undergoing a rapid transformation with Generative AI. Everything from who can make games to how quickly ideas come to life to the capabilities of games is changing. Let me summarize this reconfiguration in 6 concise points.
- Prototyping time has shrunk from weeks to hours.
- Content is not scarce anymore, and infinite variations are readily producible.
- NPCs and worlds are coming more alive.
- UGC is becoming a more powerful distribution engine.
- Small teams are becoming more capable.
- Ecosystem is starting to formalize around ethics and disclosure.
Curious to know more? Read on.
1. Prototyping time has shrunk from weeks to hours.
With generative AI, the “blank canvas” cost has shrunk tremendously. An idea can be turned into a playable prototype within minutes with the right tools. Ideaboards and moodboards can be converted into first-draft audio and visual assets for the game world. The first playtest does NOT require the players to imagine everything.
This faster iteration loop will allow more ideas to see the light of day. And with even slightly increased survival of ideas, we’ll see more innovation.
Generative AI is already transforming production pipelines everywhere, from indie studios to AAA internal tools.
2. Content is not scarce anymore, and infinite variations are readily producible.
There is a huge content economy around games. Sprites, textures, NPC “barks” and dialogue drafts, 3D meshes and objects, are all created manually using different software. For many studios, this content economy itself is what makes their games popular and significant. The scale of how many assets you can produce is a strong advantage.
AI is changing this. With AI tools like Unity Muse, Ghostwriter, and Cube 3D, “how many assets” is not the most significant advantage. Taste, curation, and playability are becoming the primary advantages.
3. NPCs and worlds are coming more alive.
For those who’ve played GTA, remember when you used to walk into a thug on the street, and he would say something rude to you. And then you’d die before completing the mission and walk into the thug again, and he will repeat the same thing. And again. And again.
This was due to dialogue trees, fixed routines, and scripted events. AI is all set to change all that. The missions can look, feel, and sound different. There can be different NPCs for other players, and those NPCs can say different things as part of the conversation. One of the most notable examples of this is the development of autonomous game characters and conversational NPCs by NVIDIA ACE. The possibilities are literally endless.
4. UGC is becoming a more powerful distribution engine
This is the second part of our thesis on which we are building Pikoo. We’re not alone, though. Even Roblox and Epic Games are experimenting with this. The fundamental thesis is that Generative AI expands the scope of who can make games. When everyone can make games, everyone will want a place to distribute their games, and thus, there will be a need for platforms to host games for everyone. Furthermore, no one wants to install new games, just as no one downloads every video.
Even for games competing for downloads, discovery, and remix culture have become as essential as the “game launch” due to the UGC explosion.
All in all, after the internet, digital cameras, and smartphones, the world is set for its 4th UGC boom.
5. Small teams are becoming more capable.
Since AI reduces the cost and time needed for every step of the game’s creation process, research, assets creation, UI variations, QA support, live-ops, etc, not to sound cliché, but it is 10x-ing the capabilities of individuals. And that’s resulting in headcount declines everywhere.
Small teams, and even individuals, are now capable of producing excellent outcomes. We’re seeing ambition being rewarded.
6. The ecosystem is beginning to formalize around ethics and disclosure.
This could have been my concluding paragraph, but I want to keep it as an essential point for anyone interested in the gaming industry. There was a time when using AI or disclosing its use was optional. While the use of AI remains optional, its disclosure is becoming mandatory. This disclosure should be understood not as a gatekeeping mechanism but as an acknowledgment of the new AI tools and the advancements they bring.
We must be vigilant about the common concerns like intellectual property protection, labor displacement, consent, and the “AI slop. Trust collapse between developers and players will be a terrible outcome for everyone, and we must avoid that.
Conclusion
Steam games that disclosed the use of AI earned $660+ million this year. This indicates that, while the culture is still debating, the adoption of generative artificial intelligence is occurring at scale in the gaming industry. Text to game AI is happening. The gaming industry is bound to be disrupted. 2026 is set to be the year when AI adoption will spring new titles, studios, and even platforms.
AI, when used right, is bound to unleash infinite creativity. Gaming is the absolute best medium to see how creative fellow humans can be. We, at Pikoo, are excited about what is coming next.
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