J.P. Morgan Nintendo (7974.T) 4Q Results: Impact of High Semiconductor Prices, Discussion About Speed of Major Title Releases
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J.P. Morgan analyzes Nintendo's fourth-quarter results, highlighting the adverse impact of elevated semiconductor costs alongside strategic discussions regarding the pace of major software releases. The surge in semiconductor prices has pressured hardware margins, causing fourth-quarter gross profit margins to decline by two percentage points year-over-year. Consequently, despite a 5% year-over-year revenue increase, net profit fell by 8%.
However, the pace of major title releases is accelerating. The company plans to shorten its blockbuster launch cycle from 18 months to just 12 months. The upcoming sequel to The Legend of Zelda, slated for the fourth quarter of 2026, is expected to drive hardware sales. Management maintains its fiscal 2026 Switch sales target at 15 million units. Additionally, the digital gaming revenue mix has climbed to 45%, providing a more stable profit stream that partially offsets cost pressures.
Looking forward, management anticipates that semiconductor prices will eventually moderate by fiscal 2027, which should alleviate near-term margin compression. To bolster shareholder confidence amid short-term earnings headwinds, Nintendo has announced a 100 billion yen share repurchase program. J.P. Morgan maintains an overweight rating on Nintendo with a target price of 9,500 yen, based on 20 times fiscal 2027 earnings. This target reflects expected benefits from the upcoming major title cycle and eventual cost stabilization.