Nintendo will raise prices on Switch 2 console and expects sales to slump. Why is the stock rising?

Japanese video game and console developer Nintendo will raise the retail price of its flagship Switch 2 console. One of the oldest companies in the games industry is facing a major crisis in the memory chip market, CNBC explains. It now expects a drop in sales and revenue.

Nintendo has announced that the price of the Switch 2 will increase by $50 to $499.99 in the US starting September 1. In Japan, the price will increase from 49,980 yen to 59,980 yen, effective as early as May 25. The company also confirmed price increases in Canada and Europe.

Nintendo explained that the decision to raise the price was dictated by "changing market conditions" and was based on "the global business outlook". The Switch 2 consoles use memory chips, the prices of which have skyrocketed due to shortages caused by the rush to build data centers for AI, CNBC noted.

In an official statement, Nintendo apologized for "the impact these changes may have on customers and other stakeholders." Until this day, the company had resisted raising the price of its flagship console in an effort to keep it affordable to the widest possible audience, Bloomberg writes. But it was forced to take this step following its competitor Sony, which in March announced a price hike for the PlayStation 5.

Nintendo has already raised prices on the first-generation Switch model in 2025, and this is the first price hike for the Switch 2, which didn't launch until June.

The company's announcement followed the release of a fresh report for the fiscal year that ended March 31. The release revealed that Nintendo sold 19.86 million Switch 2 units, making it the fastest-selling home console in history, Forbes notes. However, the high demand may have been partly due to consumer concerns about possible price increases due to the imposition of duties in the U.S., Bloomberg adds.

Nintendo expects to sell 16.9 percent fewer Switch 2 consoles in the current fiscal year, while investors were expecting sales to rise to 23-25 million units, according to Jefferies analyst Atul Goyal.

"The effect is quite dramatic, as console sales usually grow in the second year, rather than falling as Nintendo is predicting this time around," Kantan Games CEO Serkan Toto told CNBC. - It's critical now for Nintendo to release blockbusters from its own studios as quickly as possible to drive sales."

Game sales for the new platform have yet to pick up full steam after the Switch 2's debut, Bloomberg explains. Earlier this week, Nintendo announced a remake of the Star Fox video game series.

"Nintendo usually starts the year with conservative forecasts, but even with that in mind, the current numbers [for Switch 2 sales] look unexpectedly weak," Toyo Research Advice analyst Hideki Yasuda noted. - The price increase is understandable in the current macroeconomic environment, but if it leads to a drop in sales, it begs the question: was the Switch 2's appeal so strong to begin with?"

The company expects its revenue to fall 11.4% to 2.05 trillion yen ($13.1 billion) this year, while LSEG analysts predicted growth to $15.7 billion, CNBC reported. Net income will also fall, down 27% to 310 billion yen ($1.98 billion) against a market forecast of $2.67 billion. Nintendo will lose 100 billion yen ($637.8 million) due to rising component costs and U.S. duties, the company said.

Nintendo's stock is going through its worst period in a decade and is down about 30% since the beginning of the year. Investors feared that at $450, the Switch 2 console was "deeply unprofitable" due to the high cost of memory chips, according to Bloomberg. Events in the Middle East have dealt an additional blow to margins: logistics costs and prices of materials such as plastic have risen due to the conflict, the agency notes.

Nintendo shares rose 3.6 percent on Friday after the report and the announcement of the price hike.

This article was AI-translated and verified by a human editor