Nintendo Stock Has a Lot to Prove This Week

Shares of Nintendo (OTC: NTDOY) hit an all-time high last month. It may not seem to make sense at first glance.

Revenue has fallen sharply for the Japanese gaming giant, cut by more than half since peaking four years ago. The same can be said about Nintendo's bottom line. The market's also been wobbly in 2025.

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But there's a reason for the upticks. After eight years, Nintendo is ready to roll out a new gaming console. The Switch 2 will hit the market later this year. The Nintendo Direct media event is scheduled for this Wednesday morning, offering more details on the platform beyond a teaser video put out earlier this year.

Naturally, Nintendo shares are priced more for the new upgrade cycle than the lull that follows after the previous iteration plays out. This is a pretty big deal. Nintendo has never waited this long between new system introductions.

A lot is riding on this week's media event. Can it drum up enough hype to spur a wave of preorders? Will the next system be affordable and different enough to justify the stock's recent upticks, catapulting the shares to even greater heights?

All in, Nintendo has a lot to prove this week.

Playing to win

Nintendo is unique among video game stocks. It's one of the world's three leading console makers, but it also makes its platform's most popular games. Mario Bros., The Legend of Zelda, and Pokémon are just some of the iconic proprietary franchises exclusive to Nintendo. A successful platform launch triggers a spike in low-margin hardware, followed by years of higher-margin software sales.

A new upgrade cycle takes time. The breakthrough Wii system was launched in 2006. The platform's revenue peaked three years later, more than quadrupling in revenue, with net income growing nearly fourfold. The original Switch came out in 2017. Revenue would grow nearly fourfold, with profits more than quadrupling in fiscal 2021.

Things can be pretty spectacular if history repeats, as Nintendo's trailing revenue is much higher now than it was the year before the Wii and Switch debuted. Nintendo stock may seem richly priced, trading at an enterprise value that is 30 times trailing earnings and more than 8 times revenue. But it's not so cheap if Switch 2 is a hit, with both ends of the income statement roughly quadrupling in three to four years.

Image source: Getty Images.

Bait and switch, too

Sales might not catapult higher following the Switch 2 release. The Wii U's introduction in 2012 treated investors to a more muted market response. Is the new platform evolutionary or revolutionary? The early industry read is that there will be new features for the updated portable system, with detachable controllers that can also be mounted on a dock for TV play.

The teaser ahead of the April 2 media event shows a larger handheld screen, a second charging port, and a new controller button. There's also a new virtual game card system that will make it easier for players to make their software purchases more portable. Once a signature release comes out that is exclusive to Switch 2, it could be a dinner bell for the installed base of the original Switch, which has sold nearly 150 million systems in its eight years on the market.

Thankfully, there are other things working in Nintendo's favor these days. It has teamed up with Comcast's (NASDAQ: CMCSA) Universal Studios in two unique ways that should pay off even more in the near future. Comcast put out The Super Mario Bros. Movie in 2023, and it became the second-highest grossing movie worldwide that year. A sequel is slated to come out next April.

Comcast's partnership with Nintendo finds it opening Super Nintendo World at its theme parks. It opened in Japan in 2022 and California in 2023. The next opening will happen in Florida next month, on a much greater scale than its other stateside gated attraction.

Movies and theme parks give Nintendo year-round opportunities to generate licensing and merchandising revenue. It also helps boost brand awareness.

Investing in Comcast can be a reasonable play on Nintendo at a lower valuation multiple. The cable TV and content giant is depressed and out of favor. However, Comcast revenue isn't going to double, triple, or even quadruple if the Switch 2 is a big hit. Nintendo isn't cheap, but it's a premium worth paying if you feel the gaming icon is at the start of what should be a multiyear run of strong growth.

How strong will that growth be? Ask again after Wednesday's Nintendo Direct presentation.

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Rick Munarriz has positions in Comcast and Nintendo. The Motley Fool recommends Comcast and Nintendo. The Motley Fool has a disclosure policy.