Finance
China’s Hero Games shares what’s next after its hit Black Myth: Wukong
People walk past the image of the ‘Monkey King’ character, or ‘Sun Wukong’ of Chinese action role-playing game ‘Black Myth: Wukong’, developed by Chinese video game company Game Science, during its launch day in Hangzhou, in eastern China’s Zhejiang province on August 20, 2024.
Str | Afp | Getty Images
BEIJING – China’s first attempt at a top-tier video game has smashed world records, bolstering the industry’s global ambitions just a few years after Beijing’s gaming crackdown.
Black Myth: Wukong, an action game set in mythological China, sold more than 10 million units three days after its launch on Aug. 20. Ten days later, the title still ranked second by revenue in the U.S., and No. 1 globally, according to the Steam video game platform where it sells for around $60 or more.
“I think the next triple-A game is likely very close, because Black Myth: Wukong has shown everyone that a China-made AAA game can reach such high global sales,” said Dino Ying, chairman of Hero Games, which co-published the game and was an early investor in its developer Game Science. That’s according to a CNBC translation of his Mandarin-language remarks in an exclusive interview Thursday.
Ying said he knew of at least one such game under development, which his business partner at Hero Games has invested in. But he declined to share a timeframe.
As for how well Black Myth: Wukong has done, Ying only said sales have since increased by “much more” than the 10 million unit figure, although he indicated it had not yet doubled.
He said that in the future, the company’s game releases will have a global strategy from the start. He also expects foreign AAA game developers to realize how large China’s market is and tailor more features to Chinese players.
AAA games generally refer to titles with high graphics quality and significant marketing. That’s meant such video games have tended to come from companies such as Nintendo, Ubisoft and Electronic Arts.
“China is a big country. We’re talking about 1 million concurrent players,” said Ivan Su, senior equity analyst at Morningstar. “China has 600 million gamers.”
He said the reason why China hasn’t previously developed its own AAA game, which are typically played on computers and consoles, is the years-long production time. “It’s much more cost-effective if you create mobile games,” Su said.
Apple’s Tim Cook visited Hero Games
When Hero Games first invested in Game Science, Apple CEO Tim Cook visited in 2017 and was so impressed by the first game, Art of War: Red Tides, he gave it the front page of the iOS App store in 178 countries, Ying said.
But that wasn’t a commercial success.
Apple CEO Tim Cook visited the office of Hero Games in 2017 after it invested in Game Science, which went on to develop Black Myth: Wukong.
Hero Games
Hero Games had already spent three years investing 60 million yuan (about $8.5 million today) in two failed projects from Game Science when the developer approached Ying and his team in August 2020 about Black Myth: Wukong, he said.
“We’re very lucky, we didn’t give up on Game Science before it succeeded,” Ying said, noting his business partner Daniel Wu, now CEO of Hero Games, had first discovered the startup.
“We aren’t saying to blindly wait for all people,” he said. “When you see that kind of talent, you need to be confident that that talent has been underappreciated. It may not have found the right direction. [So you just need to] help it to find it.”
‘Best game that I have seen’
Two days before Game Science planned to release a promotional video for Black Myth: Wukong, the company showed it to Ying and asked his team for at least 100 million yuan more, he said. If not, he said the startup planned to ask Bilibili, a major Chinese video streaming and game platform.
After watching the video, Ying said he told his team that “I really don’t want to miss this opportunity because this is the best game that I have seen in my life.”
Tencent then bought a 5% stake, but said it would not interfere with Game Science’s plans, Ying said. “Because this was an AAA game, under the normal process of a big business, there was no way it would have been approved.”
Hero Games’ initial investment in Game Science was for a 20% stake.
Beijing has only in the last two years started to approve games, after suspending new titles and limiting how many hours minors could play in 2021.
Black Myth: Wukong got China’s government approval in February. No part of the game needed to be changed for it to pass, Ying said.
“Personally I think in the past two years the regulation is increasingly respectful of the game industry and is beneficial to its development,” Ying said, noting that one or two years ago, there “was a misunderstanding.”
Massive market potential
In the first half of this year, domestic game sales in China reached 147.27 billion yuan, said Ashley Dudarenok, founder of China digital consultancy ChoZan, citing industry figures.
But console game revenue was just 0.5% of that, she said.
Ying pointed out that many people in China bought PlayStations or upgraded their graphics cards after Black Myth: Wukong’s release, similar to how many people first bought the Nintendo Switch because of Zelda.
Something that’s lasted 1,000 years, people will definitely like it
Dino Ying
Hero Games, chairman
As for the global market, Dudarenok said overseas sales of China-developed games rose to $16.4 billion in 2023, up from $11.6 billion in 2019.
“Chinese games often incorporate rich cultural elements that appeal more and more to a global audience,” she said. “This unique cultural flavor sets them apart from games developed in other regions”
Ying said he expects China has at least five to 10 other stories that have been passed down over the last millennia that can be turned into games.
“If I create a new thing, I don’t know if people will like it. But something that’s lasted 1,000 years, people will definitely like it,” Ying said. “We don’t know why it was preserved over so many years. But we just need to respect the [original] artisans.”
He said Game Science sent teams and equipment to ancient temples in China to scan and replicate the designs, boosting the game’s immersive feel.
Indie Chinese games
In the more niche market of independent games, Chinese companies are also on the rise.
Shanghai-based Cotton Game, which has a staff of 70 people, won the 2024 award for best development team in indie games from the French-supported Game Connection organization and ChinaJoy, which runs a major annual game conference in China.
“It depends on how capable we are, but [we hope to] use games as a way to share art, philosophy and thoughtful content,” the company’s CEO, who goes by the English name Cotton Guo, said in Mandarin translated by CNBC.
Cotton Game’s Sunset Hills – which took five years to draw by hand – also won the “Game of the Year” and “Best Indie Game” awards. The $20 game launched on Aug. 21 on Steam after raising $13,000 on Kickstarter.
The game follows an anthropomorphic dog through a Europe-like village, accompanied by the sounds of nature and music. Players solve puzzles along the way.
“Everyone is quite tired. In society today, the speed of life is very fast,” Robin Luo, the manager of Sunset Games. Its main character is based on his own dog. “So my hope while making Sunset Hills was that everyone playing the game could [find it] refreshing.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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