Nintendo, 'Emergency' Despite Exceeding Expectations... Warns of AI-driven Memory Cost Bomb

▲ Nintendo (NTDOY)/AI generated image

Nintendo (NTDOY) announced first-quarter results that significantly exceeded market expectations, but warned that the cost of sales could increase by up to 100 billion yen due to rising memory prices driven by artificial intelligence (AI) demand.

According to Benzinga on August 6 (local time), Nintendo's first-quarter revenue for the fiscal year was 517.8 billion yen, surpassing the market estimate of 444.96 billion yen. Net income was 147.4 billion yen, nearly double the estimated 78.3 billion yen. Earnings per share (EPS) were $0.2, exceeding the estimated $0.1, and dollar-denominated revenue also surpassed the market forecast of $3.08 billion, reaching $3.249 billion.

Operating profit increased by 150.5% year-on-year to 142.6 billion yen, significantly exceeding the market estimate of 70.3 billion yen. Nintendo maintained its annual operating profit forecast of 370 billion yen and sales targets for Switch 2 hardware and software. Approximately $300 million in US tariff refunds lowered the cost of sales, and the weak yen also added a positive effect of 39 billion yen to revenue.

However, the annual performance outlook fell short of market expectations. Nintendo presented an EPS of $0.43 and revenue of $13.071 billion for the fiscal year 2026. Market estimates were $0.51 and $14.81 billion, respectively. Switch 2 sales in the first quarter decreased by 34.4% year-on-year to 3.82 million units, and sales of the existing Switch also decreased by 31.8% to 660,000 units.

Game sales partially offset the hardware sluggishness. Tomodachi Life: Living the Dream sold 7.94 million units, and Pokémon Pokopia sold 1.27 million units. Hideki Yasuda, a senior analyst at Toyo Research and Advice, commented that since first-quarter sales have already exceeded 20% of the annual target, Switch 2 sales are likely to significantly surpass the company's forecast.

Nintendo stated that rising component prices, including memory, and tariff burdens could increase the cost of sales by approximately 100 billion yen, or about $680 million in dollar terms. The price of memory semiconductors used in Switch 2 has increased due to expanding AI demand. Nick McKay, an analyst at Freedom Capital Markets, pointed out that in addition to component prices and tariffs, the lack of major new titles for flagship intellectual properties such as Super Mario and The Legend of Zelda is also a concern for investors.

[Key Article Summary]

-Nintendo's first-quarter operating profit increased by 150.5% year-on-year to 142.6 billion yen, significantly exceeding market expectations.

-Rising memory prices due to AI demand and tariff burdens could increase the cost of sales by up to 100 billion yen.

-Switch 2 sales decreased by 34.4% to 3.82 million units, but Nintendo maintained its annual sales target.

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