Under the Spotlight: Nintendo (NTDOY)

It’s on like Donkey Kong. 

Gamers have scrambled to get their hands on Nintendo’s ($NTDOY) new Switch 2 as it smashes sales records in what’s shaping up to be the biggest console launch ever. 

The buzz has been building with massive pre-orders and long queues of fans eager to grab the much anticipated update to Nintendo’s original 2017 blockbuster console. But what good is a new console without a high profile game to get gamers excited? 

Nintendo hasn’t disappointed: Mario Kart World is the headline act, nodding to the enduring popularity of the fast-paced and family-friendly franchise first launched in 1992. 

Early signs suggest the Switch 2 will be a gamechanger for Nintendo. Sales of the original Switch had slowed, but its successor is expected to drive a significant revenue increase. 

That’s great news for investors. Since we last looked at Nintendo two years ago, the stock has gained around 113%, including a 40% rally this year alone as investors plugged in ahead of Switch 2 mania. 

$NTDOY is an American Depositary Receipt traded on the over-the-counter market. It’s equal to one quarter of a Nintendo share listed in Tokyo.  

Switch on

So what’s got gamers spending? Nintendo has kept a winning formula. The Switch 2 is similar in how it can be played: it works as a portable handheld device, a tablet, or docked into an external screen, like the living room TV. 

New features include a bigger, higher resolution screen 4K TV compatibility, smoother gameplay thanks to faster frame rates, and the new Joy-Con 2 controller that connects magnetically. It supports games from the original Switch and GameChat allows players to – you guessed it – chat with friends while gaming. 

Reviews are vital to winning over old and new customers to Switch 2 and the feedback has been fairly positive. The bigger screen, magnetic Joy-Con and quicker load times have been praised, but there’s also been complaints about faulty Joy-Con controllers and a home screen which looks a little too similar to the old Switch.   

Levelling up

Nintendo expects the Switch 2 to not only please its customers but also its beancounters. If anything, the gaming giant may have been a little too modest in its forecasts. 

The company forecasts 15m units sold in FY26. Some analysts think that’s too conservative given the original Switch smashed expectations: Nintendo initially forecast 10m units would be sold in the first year, only to see sales of 15m. Media reports suggest Switch 2 sales could be as high as 20m units if supply holds up.

The company has its eye on one number of interest to customers: price. CEO Shuntaro Furukawa says the Switch 2 is ‘priced relatively high’ compared to its predecessor but he’s banking on backwards compatibility and the Mario Kart World launch bundle to   help it ‘get off to the same start we did with Nintendo Switch.’ In Australia, the Switch 2 is selling for $699 or $769 for the Mario Kart World bundle. 

So what do fast sales and premium prices mean for earnings? Nintendo forecasts FY26 total revenue will jump 63% year-on-year to ¥1,900b, with operating profit expected to rise 13% to ¥320b. Shareholders have been promised a 7.5% increase in annual dividends. 

Ahead of the game

Nintendo’s share price has already powered up but is the stock’s multiple justified at over 40x forward earnings?

One bull is Jefferies: the broker predicts Nintendo could surpass Toyota to become Japan’s largest company. Its price target is up from ¥15,580 to ¥20,220 a share, or roughly US$140 a share, offering decent upside given four NTDOY ADRs are worth around US$80. Still, some analysts argue valuations look ‘really stretched’. 

Analysts see the Switch 2 pushing Nintendo’s share of the console hardware market to around 50% by 2027. Yes, there is competition: Microsoft has joined forces with ASUS to launch its ROG Xbox Ally handheld console. Sony is also working on a handheld console, but it’s a long way from release.  

Right now, Nintendo is winning the handheld market. That drives both hardware sales and software sales. It is expected users could spend US$2b on games this year and US$7b-US$8b over the next two years. This includes exclusive Nintendo content like Donkey Kong Bananza (released 17 July) and third party games. 

High score

It’s game on in the console wars. Investors have picked their fighter - and their choice is Nintendo. 

The stock has zoomed higher on Switch 2 hype. Early signs are positive and any upgrade to Nintendo’s sales forecast may give the stock a Mario Kart-like rocket boost.