Nintendo (TSE:7974) just raised its Switch 2 sales forecast from 15 million to 19 million units for fiscal 2026, even as rising memory chip costs squeeze console margins and pressure the stock.
See our latest analysis for Nintendo.
The market has pulled back sharply on the near term margin squeeze, with a roughly 18 percent 1 month share price decline. However, that comes after a solid year to date share price gain and a powerful three year total shareholder return above 100 percent, which suggests long term confidence in Nintendo’s growth story is still largely intact.
If this kind of console cycle momentum has your attention, it might be a good time to explore other gaming and hardware names through high growth tech and AI stocks and see what else is setting up for the next leg higher.
With shares now trading at a steep discount to analyst targets despite upgraded Switch 2 expectations and double digit earnings growth, is Nintendo quietly becoming a mispriced compounder, or is the market simply front running all that future upside?
On a last close of ¥10,650, Nintendo trades on a rich price to earnings ratio of 33.6 times, implying the market is paying up for future growth.
The price to earnings multiple compares what investors pay today to the company’s current earnings, a key yardstick for profitable, mature entertainment and gaming businesses.
For Nintendo, this elevated multiple suggests investors are willing to pay a premium for forecast earnings growth of around the mid teens per year, even though management has faced profit volatility and earnings have actually declined on average over the past five years. Yet, when stacked against an estimated fair price to earnings ratio of 37.8 times, the current valuation still sits below the level our model indicates the market could gravitate toward if growth expectations are met.
Relative to peers, the premium is even starker, with Nintendo valued higher than both the specific peer set on 32.3 times earnings and the wider Japanese entertainment industry on 18.4 times. This underscores how much more investors are willing to pay for Nintendo’s franchises and upcoming console cycle compared with other media names.
Explore the SWS fair ratio for Nintendo
Result: Price-to-Earnings of 33.6x (OVERVALUED)
However, risks remain, including potential Switch 2 execution missteps or a sharper slowdown in software momentum, which could quickly challenge today’s growth premium.
Find out about the key risks to this Nintendo narrative.
Our SWS DCF model paints a tougher picture, putting fair value at around ¥9,369 per share, which makes the current ¥10,650 price look overvalued despite the rich price to earnings ratio. If both signals are flashing caution, is the market already pricing in a flawless Switch 2 cycle?
Look into how the SWS DCF model arrives at its fair value.
7974 Discounted Cash Flow as at Dec 2025
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Nintendo for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 914 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.
If you see things differently or would rather dig into the numbers yourself, you can build a bespoke Nintendo storyline in just minutes: Do it your way.
A great starting point for your Nintendo research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.
Do not stop at a single thesis when you can quickly scan fresh opportunities through the Simply Wall Street Screener and line up your next potential winner.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include 7974.T.
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