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    Can Nintendo (TSE:7974) Software Strength Cushion Switch 2 Margin Pressure From Higher Chip Costs?

    Simply Wall St·12/21/2025 07:14:32
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    • Nintendo recently faced concerns over rising memory chip costs squeezing margins on its new Switch 2 console, even as the company lifted its fiscal 2026 sales forecast for the device from 15 million to 19 million units on the back of strong hardware and software demand.
    • An interesting angle is how Nintendo is leaning on higher Switch 2 and game sales volumes to help offset input cost pressure, underscoring the central role of its software ecosystem in supporting the broader console business.
    • Next, we’ll examine how Nintendo’s raised Switch 2 sales forecast and cost pressures might influence the company’s investment narrative.

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    What Is Nintendo's Investment Narrative?

    To own Nintendo today, you have to believe in the durability of its IP-driven ecosystem and the company’s ability to translate hardware cycles into recurring, high-margin software and licensing cash flows. The core near term catalyst is the Switch 2 launch, with Nintendo now guiding to 19 million units for fiscal 2026, but the recent selloff on higher memory costs is a reminder that hardware margins are not a one way story. The raised guidance, stronger dividend outlook and refreshed payout policy all lean on sustained revenue and earnings growth, yet Return on Equity remains relatively modest and past five year profit trends have been uneven. The latest news effectively sharpens the trade off: volume and software strength versus input cost risk and a valuation already above some fair value estimates.

    Yet one key risk could matter more than chip costs for long term shareholders.

    Nintendo's share price has been on the slide but might be up to 14% below fair value. Find out if it's a bargain.

    Exploring Other Perspectives

    TSE:7974 1-Year Stock Price Chart
    TSE:7974 1-Year Stock Price Chart

    Six Simply Wall St Community fair value views span from ¥8,277 to almost ¥19,600, reflecting very different expectations for Nintendo’s future. Against that backdrop, the recent margin concerns around rising memory costs and the elevated valuation relative to some models give you a wide set of opinions to weigh before deciding how the Switch 2 cycle might shape overall performance.

    Explore 6 other fair value estimates on Nintendo - why the stock might be worth 22% less than the current price!

    Build Your Own Nintendo Narrative

    Disagree with this assessment? Create your own narrative in under 3 minutes - extraordinary investment returns rarely come from following the herd.

    • A great starting point for your Nintendo research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.
    • Our free Nintendo research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Nintendo's overall financial health at a glance.

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    This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.