Shares of Japanese videogame maker Nintendo rose sharply as investors cheered more evidence of strong videogame software sales and signs of a brighter outlook for the profitability of its consoles.
The Tokyo-listed stock climbed as much as 7.4% to 8,945 yen, equivalent to $56.08, on Friday before paring gains to 6.9%. It remains on track for its largest one-day percentage gain since March.
On Thursday, Nintendo and Pokemon Co., which manages one of the Japanese company's most popular franchises, Pokemon, said global sales of their Switch 2 game, "Pokemon Pokopia," released in March, surpassed 5 million units across physical and digital versions in just over four months.
Last week, Nintendo reported combined software sales of nearly 43.3 million units for the quarter ended June, a more than 30% increase from a year earlier.
"This suggests that consumer appetite for buying games is increasing as they migrate to Switch 2, which is very encouraging," said Kazunori Ito, Morningstar equity research director.
He also views Nintendo's shares as meaningfully undervalued. Morningstar has a fair-value estimate of Y12,000 on the stock.
Besides strong game sales, the outlook for hardware profitability likely also contributed to the share-price advance, Ito said. Memory-chip prices have been surging amid the artificial-intelligence boom, posing a significant headwind to videogame-console makers. That has spurred Nintendo and its peers to raise console prices to protect product profit margins.
The pace of memory-price increases has been slower than feared, Ito said, noting the signing of long-term supply agreements and planned production-capacity additions. These moves have likely made investors "more comfortable that memory prices may be approaching a ceiling," he said.
Ito said he expects Nintendo's console profitability to improve from 2029 as memory prices come down. Together with the launch of more Switch 2-exclusive titles, Nintendo's profit growth is likely to remain steady over the longer term, he said.
Comments