MGM Resorts: The Undervalued AI-Driven Growth Engine in the Entertainment Sector

The entertainment industry is undergoing a seismic shift, with artificial intelligence (AI) transforming operations, customer experiences, and revenue streams. Among traditional players, MGM Resorts (NYSE:MGM) stands out as a hidden gem—its stock undervalued relative to its AI-driven innovations and strategic growth initiatives. This article explores how MGM's integration of cutting-edge technologies positions it as a leader in the AI revolution, while its stock remains underappreciated despite compelling fundamentals.

The AI Transformation: Strategic Integrations Powering Future Growth

MGM's recent moves reflect a bold pivot toward AI and digital innovation, addressing both operational efficiency and guest engagement. Key initiatives include:

1. AI-Enhanced Security Training: Partnering with ustwo, MGM deployed a VR training program for its security teams. This AI-driven simulation platform improves decision-making in high-pressure scenarios, reducing response times and enhancing safety—a critical advantage in high-stakes environments like casinos.

2. Blockchain and NFT Innovation: In collaboration with YellowHeart, MGM issued NFT tickets for performances like Jabbawockeez, embedding benefits such as exclusive meet-and-greets and digital collectibles. This pilot not only combats ticket fraud but also opens new revenue streams through blockchain-enabled loyalty programs.

3. BetMGM's AI-Driven Dominance: MGM's 50/50 joint venture with Entain, BetMGM, has become a poster child for AI's potential in sports betting. AI algorithms now power predictive analytics, customer behavior modeling, and fraud detection, driving revenue to an estimated $2.6 billion in 2025—up from $2.4–2.5 billion earlier projections.

   

4. Operational Optimization: Behind the scenes, AI and IoT systems streamline everything from slot machine configurations to predictive maintenance. For instance, MGM's Q1 2025 hotel occupancy hit 94%, aided by AI-driven pricing and personalization tools.

Why the Stock Remains Underappreciated

Despite these advancements, MGM's stock trades at $34—a 39% discount to its intrinsic value of $67.79 (per Alpha Spread's analysis). This undervaluation stems from two factors:

1. Debt Overhang: MGM's $32 billion debt looms large, with a debt-to-equity ratio of 335%. While this raises concerns, the company's $2 billion buyback program signals confidence in its ability to deleverage over time through cash flow from BetMGM and operational improvements.

2. Market Myopia: Investors focus on near-term risks (e.g., macroeconomic volatility) rather than long-term opportunities. For instance, BetMGM's Japan expansion—a $8 billion project targeting 2030—could unlock a $5 billion EBITDA opportunity, yet this is barely reflected in current valuations.

Data-Driven Case for MGM's Upside

Let's dissect the numbers:

The stock has lagged behind broader indices despite BetMGM's growth. Since 2023, it's up 15% versus the S&P 500's 35% gain.

MGM trades at 0.5x P/S versus the S&P's 3.1x and 7.8x P/FCF versus the S&P's 20.9x—a clear valuation discount.

BetMGM's revenue has surged from $1.8 billion in 2023 to an estimated $2.6 billion in 2025—a 44% compound annual growth rate (CAGR).

Risks and Mitigation Strategies

Key Risks:
- High Debt: MGM must refinance debt maturities while maintaining flexibility.
- Regulatory Hurdles: US-China trade tensions and Japan's gaming approvals could delay BetMGM's expansion.
- Consumer Sentiment: A recession could dampen discretionary spending.

Mitigation:
- BetMGM's Profitability: The venture's EBITDA is projected to exceed $100 million in 2025—marking a turning point from cost center to profit driver.
- Diversification: MGM's Las Vegas Strip dominance (94% occupancy), Macau operations, and regional properties (e.g., Borgata's 19% revenue growth in Q1 2025) provide resilience.

Investment Thesis: A Contrarian Opportunity

MGM presents a compelling risk-reward profile for long-term investors:
- Upside Catalysts: BetMGM's Japan entry, metaverse initiatives, and AI-driven operational efficiencies.
- Valuation Safety: At 15.4x P/E, it's cheap relative to its growth trajectory.
- Debt Management: The buyback program and cost-saving measures aim to reduce leverage to sustainable levels by 2026.

Actionable Advice:
- Buy on dips: Consider accumulating shares below $35, with a $48 price target (as per CBRE's 6.5x 2026 EBITDA multiple).
- Hold for 3–5 years: The payoff hinges on BetMGM's global expansion and MGM's AI-driven margin improvements.

Conclusion: Betting on the Future of Entertainment

MGM's undervaluation masks its potential as an AI-driven growth leader. While risks like debt and macro headwinds persist, the company's strategic bets—BetMGM's scalability, NFT-driven loyalty, and AI-optimized operations—align perfectly with the exponential growth of AI in entertainment. For investors willing to look beyond short-term noise, MGM offers a rare chance to capture the next wave of innovation in a sector poised for transformation.