Rf-sputtered Mg 0.05 Zn 0.95 O thin films become amorphous/nanocrystalline with the addition of hafnium oxide. All films (thickness: ~100 nm) sputter-deposited from Hf x Mg 0.05 Zn 0.95 − x O targets are highly transparent (N80%) from 400 to 800 nm. The Tauc bandgap ΔE (eV) increases with the Hf content. However, the bandgap decreases after thermal treatment. The reduction in the bandgap is positively correlated with the Hf content and annealing temperature. The residual stresses of films sputtered from Mg 0.05 Zn 0.95 O and Hf 0.025 Mg 0.05 Zn 0.925 O targets are de-termined based on X-ray diffraction (XRD) data using a bi-axial stress model. The residual stresses of as-deposited films are compressive. As the annealing temperature increases, the residual stresses are relaxed and even become tensile. The bandgap narrowing after thermal treatment is attributed to the stress relaxation that changes the repulsion between the oxygen 2p and zinc 4s bands. Slight grain growth may also result in bandgap reduction because bandgap modification caused by the quantum confinement effect becomes significant in amorphous/nanocrystalline materials. The amorphous thin films reveal good thermal stability after 600 °C an-nealing for up to 2 h, as evidenced by the XRD and transmission spectra.