Nintendo Stock Climbs on Switch 2 Reveal and Strong Sales

Nintendo's stock price climbed 2% on Thursday, driven by several factors that align with the company's long-term growth strategy. The gaming giant's share price was up as of 2:45 p.m. ET and had been up as much as 3.5% earlier in the daily session. Nintendo stock is climbing today following the initial reveal of the company's upcoming Switch 2 video game console and the launch of a new Mario Kart game.

Nintendo took the wraps off its Switch 2 platform in a promotional video released today, which generated excitement among investors and consumers alike. The new system is expected to launch later this year and will feature improved graphical capabilities, control interfaces, and ports for USB devices, headphones, and other peripherals. This aligns with Nintendo's long-term strategy of continuous innovation and improvement in its hardware offerings to maintain a competitive edge in the console market.

In conjunction with the reveal trailer for the Switch 2, Nintendo also debuted a short clip of a new Mario Kart game. Mario Kart is one of the company's best-selling series, and launching its new gaming system with a fresh title in the franchise would be a great way to drive sales. This aligns with Nintendo's strategy of leveraging its popular first-party franchises to attract and retain customers, as well as to generate buzz and excitement around new hardware releases.

Nintendo's robust growth in sales and profits during the pandemic has also contributed to the stock's climb. The company's net sales more than doubled year over year in the fiscal first quarter (ended June 30), and net profit per share surged 541% year over year, bringing Nintendo's trailing 12-month net profits to 348.5 billion yen ($3.2 billion). This growth was due to more Switch owners buying games digitally, which generates higher margins than sales of game cartridges. Digital software sales comprised 55.6% of total software sales last quarter, up from 38.3% in the year-ago quarter. This shift towards digital sales is a major trend across the video game industry and aligns with Nintendo's long-term strategy of diversifying its revenue streams and adapting to changing consumer preferences.

Nintendo's stock price has also been boosted by positive outlook from key suppliers. NVIDIA, a key Nintendo supplier, provided investors with a clue that Nintendo's momentum is for real. During its recent quarterly conference call, NVIDIA guided for continued growth in its gaming segment through the next quarter with shipments for console products contributing to that growth. NVIDIA CFO Colette Kress said console shipments are expected to be up "strongly quarter over quarter." This positive outlook from a key supplier validates Nintendo's strong performance and growth prospects, further boosting investor confidence in the company's stock.

Nintendo's stock currently trades at about 20 times its trailing earnings, lower than its video game peers. This valuation may not fully reflect the company's strong performance and growth prospects, making it an attractive investment opportunity. As Nintendo continues to execute on its long-term growth strategy, investors may see further upside in the stock as the company's fundamentals improve and its valuation catches up with its peers.