Shares of video game titan Nintendo Co., Ltd. recorded their steepest single-day decline in 18 months on the Japanese market, triggered by disappointing earnings figures that revealed a severe contraction in operating margins. Investor anxiety is mounting over projections that persistently escalating memory chip prices through 2026 will further pressure profitability. The stock, historically known for its long-term bullish trajectory, plummeted by over 12% during Wednesday's trading session in Tokyo. The Kyoto-based gaming leader is confronting global cost disruptions stemming from U.S. tariffs, while a surge in memory component costs, fueled by massive investments in AI computing infrastructure, is concurrently dampening its performance outlook.
The latest financial results and future guidance released by Nintendo on Tuesday highlighted that fierce competition for memory chip capacity from booming AI data center construction has caused procurement costs for core memory components to skyrocket. This has emerged as the central factor behind the Switch 2 console's predicament of "increasing revenue without boosting profits." Despite growth in Switch 2 sales volumes, hardware margins have been severely eroded. Furthermore, the company's low-price strategy in its domestic Japanese market has further diluted profitability, and its decision to maintain its full-year guidance and hardware sales target of 19 million units (from its June launch through the end of March) was interpreted by the market as conservative.
Investors' concerns regarding "memory costs consuming consumer electronics profits" are well-founded. Nintendo's management explicitly stated in its earnings commentary that if high memory component prices persist, exceed expectations, and become long-term, they could further compress profit margins. Market research firm TrendForce indicated in a study that the cost of memory modules in game consoles could constitute approximately 21%–23% of total hardware costs by 2026, significantly squeezing hardware margins and limiting future price reduction flexibility. This suggests downside risks to gross margins for consumer electronics brands will intensify over the coming quarters.
TrendForce predicts that soaring memory prices are substantially increasing the total cost of consumer electronic products, forcing end-product price hikes that will subsequently impact the global consumer market. Consequently, following its downward revision of global smartphone and laptop production and shipment forecasts for 2026 in early November, TrendForce's research team has also significantly lowered its 2026 game console shipment forecast, adjusting it from an expected annual decline of 3.5% to a steeper decline of 4.4%.
Even a powerhouse like Nintendo is struggling to withstand the simultaneous sharp increases in DRAM and NAND costs. The company's flagship Switch 2 console enjoyed a record-breaking sales launch in the summer of 2025 but is now shrouded in concerns over profitability and demand due to intense pressure from DRAM/NAND memory costs. Observers worry whether the creator of *Super Mario Bros.* can consistently release software blockbusters on a sufficient scale to maximize earnings.
During the recent holiday shopping quarter, sales volume in the Japanese domestic market—where the company sets lower device prices to attract consumers—increased its share of total business. However, some consumer electronics market analysts fear that this cheap strategy, combined with continually expanding memory component costs, could further harm profits. As memory costs keep rising, Nintendo's current discounting efforts and future room for price reductions are expected to diminish, suggesting potential severe challenges for future demand.
In the past holiday quarter (Q4), the Switch 2's sales performance was respectable, reaching approximately 7.01 million units, slightly above the analyst consensus estimate of 6.5 million. However, this robust sales growth did not translate into a proportional increase in profits, as actual margins were heavily eroded by discount strategies and substantial memory component costs.
The latest earnings report shows that while sales of Nintendo's flagship Switch 2 product exceeded average market expectations, quarterly operating profit reached only about 155.21 billion yen (approximately $998.5 million), far below the average analyst forecast of 180.7 billion yen. Although quarterly sales surged over 80% to 806.32 billion yen, operating profit growth was limited to 23%, also missing market expectations, and the operating profit margin was significantly compressed.
This earnings discrepancy has sparked investor concerns about the company's profitability, with the core focus being that soaring memory component costs and the Japanese market's cheap strategy are eroding the new hardware's already thin margins. Additionally, to quickly lock in consumers in its home market, Nintendo artificially set a lower price for the Switch 2 in Japan. The expanded proportion of Japanese domestic sales during the holiday season further reduced the overall profit margin level.
It is understood that within Nintendo's console/handheld consumer electronics, DRAM (running memory) and NAND (flash memory/internal storage) represent significant and "non-negligible" Bill of Materials (BOM) cost items—and their disruptive impact on hardware gross margins is amplifying during the 2026 "memory price hike cycle." DRAM and NAND memory components are standard core devices in Nintendo's历代 game consoles/handhelds. On a "per-bit/per-GB unit cost" basis, DRAM is typically much more expensive. As one of the three major memory manufacturers, SK hynix, explains plainly: DRAM cost/bit is usually an order of magnitude higher than NAND (i.e., at least "10 times more").
While DRAM is more expensive per unit, which component contributes more to the total unit cost depends on the NAND capacity configuration—when the internal storage in a Switch device is increased to large capacities like 256GB, the absolute cost of NAND likely becomes larger. However, during a phase like 2026, characterized by "AI training/inference computational demand squeezing memory supply and DRAM prices rising more sharply," DRAM cost acts more as the short-term dominant risk factor for hardware profitability.
Statistics show that the cost of the 12GB DRAM module used in the Switch 2 jumped approximately 41% in the fourth quarter, while the 256GB NAND increased about 8%. This "difference in rate of increase" implies that even if the absolute cost of NAND storage is large, the exaggerated surge in DRAM prices is often the marginal variable that more easily breaches hardware gross margins.
Industry statistics indicate that since September 2025, prices for flagship memory products based on DRAM technology—DDR5 memory modules—have increased overall by over 370%, while DDR4 memory module prices have risen over 150%. The spot price of DDR5 DRAM chips (e.g., 16Gb DDR5 spot price), representing the most upstream spot price from memory chip manufacturers, has surged a staggering 455% since September 2025.
Industry surveys from institutions like Counterpoint Research reveal that AI server systems require at least 8-10 times more data-center-grade memory capacity than standard server systems. This massive demand means AI servers currently consume 53% of global monthly memory production capacity, severely squeezing the allocation of capacity for consumer-grade DDR memory products. Leading global cloud service providers, including Google and Microsoft, are placing huge purchase orders, even reserving portions of the three major memory chip manufacturers' idle capacity for the next 2-3 years.
Nintendo's proud software ecosystem may also struggle to rescue its profits in the short term. Amir Anvarzadeh, a senior analyst at Asymmetric Advisors, stated, "With mobile games like *Brainrot* on the Roblox platform clearly attracting more teenagers, Roblox has become the most significant threat factor capturing share of Nintendo's younger player base." He emphasized that long-term, memory price pressure on hardware margins might not be the primary issue. "What has become crucial for Nintendo's fundamental growth is selling more software tied to the console."
As illustrated, Nintendo's operating costs surged with the launch of the Switch 2, as the Kyoto-based company maintains high expenditures to promote its new software and hardware ecosystem platform. The gaming giant has long employed a patient strategy, taking more time to polish and perfect new game products, thereby winning a global base of loyal fans. However, with increasing fragmentation of user attention and the highly anticipated release of *Grand Theft Auto VI* planned for this year, Anvarzadeh warned that the company faces greater pressure. A strong software ecosystem might still fail to salvage profits, and Nintendo will need to retain more players and sustain sales growth amid soaring memory costs and continuously compressed profit margins.
Nintendo executives addressed widespread market concerns about memory prices during a conference call on Tuesday. Prior to this, several consumer electronics brands had already raised selling prices or adjusted product storage specifications due to memory component costs. According to a recording of the call, Nintendo President Shuntaro Furukawa told analysts, "The market environment is indeed challenging. But we are engaging in long-term discussions with suppliers to ensure we maintain stable memory chip procurement volumes. We do not anticipate a significant negative impact in the fourth quarter of this fiscal year. However, starting from the next fiscal year, if this wave of memory chip price increases lasts longer than expected, it could further negatively pressure our profitability." Furukawa acknowledged the possibility of price increases for Nintendo's Switch series consoles but stated the company would carefully weigh its options.
Nintendo maintained its full-year revenue and operating profit guidance ranges and reaffirmed its sales forecast for the Switch 2: selling 19 million units between its June launch and the end of March. Nathan Naidu, a senior analyst at Bloomberg Intelligence, noted that given the Switch 2 had sold 17.37 million units by December, this forecast appears decidedly conservative and insufficient to boost market sentiment. In a report, Citigroup senior analyst Tokiya Baba wrote that weak Switch 2 software sales contributed to the profit miss. "We see investors refocusing on the risk of a significant deterioration in Switch 2 profitability starting from the next fiscal year."
The current pessimistic trend of "memory chip costs devouring consumer electronics supply chain profits" is likely to persist in the short to medium term. TrendForce judges that the memory component price surge is driven by sustained AI/data center demand squeezing memory chip capacity and worsening supply-demand imbalances, with potential for further upward revisions in DRAM/NAND memory product prices. Simultaneously, end-brand manufacturers are already forced to hedge costs through price increases and specification reductions. TrendForce anticipates the PC, smartphone, and game console markets could experience greater volatility by Q2 2026 (essentially a rebalancing process involving "demand destruction + supply adjustment").
Therefore, for Nintendo, the primary means to buffer the impact of memory costs are long-term procurement agreements and necessary adjustments to hardware pricing/regional pricing. However, the true path to navigating the memory chip inflation cycle and shifting the profit and valuation model "from hardware consumption back to software/subscription" remains the density of software ecosystem hits and the software attachment rate—precisely the axis of greater current market anxiety, as fears mount that even a strong software ecosystem may not compensate for the massive profit squeeze caused by memory chips and discount strategies.
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