UBS: Nintendo — Multiple Negatives Ahead
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UBS projects Nintendo's (7974.T) Q3 FY2026 operating profit at approximately JPY 126 billion, significantly trailing the Bloomberg consensus of JPY 185 billion, primarily due to weak software sales. While hardware shipments of roughly 8.5 million units for the quarter align with market expectations, sluggish sales trends in Western markets indicate potential difficulties in further accumulating Q4 shipments.
New game releases, such as Pokémon Legends: Z-A and Metroid Prime 4: Beyond, may fall short of market expectations. Although Nintendo might raise its full-year guidance alongside Q3 earnings, UBS notes that long-term investors focus heavily on the hardware installed base. Consequently, a slow hardware rollout could disappoint the market despite an operating profit guidance increase.
Multiple overlapping risks are likely to constrain the stock. A potential Nintendo Direct presentation in early 2026 could serve as a negative catalyst if 2027 pipeline expectations are too high. Additionally, rapid memory price increases may pressure hardware margins starting in the second half of FY2027. Macroeconomic softness and potential tariff-related price hikes add further headwinds.
Reflecting capital rotation out of the gaming sector, UBS reduces its valuation multiple from 20x to 18x. The target price is marginally trimmed from JPY 10,410 to JPY 10,400, and a Sell rating is maintained.