Core Viewpoint - Nintendo's stock has surged 25% in 2025, driven by optimism surrounding the upcoming Switch 2 launch, which is expected to support games from the original Switch and is anticipated to be released in 2025 [1][3]. Sales Expectations - The recent stock gains reflect high expectations for sales, with the stock trading at a multiple of sales typically reserved for the fastest-growing video game stocks [2]. - Nintendo's guidance indicates a 29% year-over-year decline in sales for the fiscal year ending March 2025, leading to expectations that Switch 2 will revive demand and grow sales [5]. Product Details - Limited details have been provided about the Switch 2, but it is confirmed to support original Switch games, and Nvidia is expected to supply an updated Tegra processor, potentially enabling newer games like Grand Theft Auto VI [3][4]. Valuation Concerns - The stock is trading at over 10 times trailing sales, which is considered expensive compared to other gaming stocks, such as Roblox, which has a price-to-sales multiple of 12 despite posting 32% revenue growth [6]. - Nintendo's forward price-to-earnings (P/E) ratio stands at 34, which is high for a company reliant on a cyclical console market [7]. Revenue Growth Challenges - Nintendo needs to sell more hardware units, which typically generate low profit margins, to drive revenue growth, while leading video game software companies have smoother sales histories and lower valuations [8]. - Analysts expect Nintendo's annual revenue to fall from a peak of 8 billion in the current fiscal year [9]. Investment Outlook - Given the uncertainty surrounding Switch 2 sales, it may not be advisable to buy the stock at new highs, as disappointing sales could lead to a significant stock price drop due to its rich valuation [10].
Nintendo Stock Is Soaring: Is It a Buy, Sell, or Hold?