Disclaimer: This report is for informational purposes only and does not constitute financial advice. All investments involve risk, including the loss of principal. I, Rei Saito, may hold positions in the securities mentioned.
Date: December 26, 2025
Subject: Nintendo Co., Ltd. (7974.T / NTDOY)
Current Price: ¥10,795 (approx.)
Executive Summary
It is December 18, 2025. The Nintendo Switch 2 has been on the market for six months. It has sold over 10 million units. The software attach rates are defying gravity, with Mario Kart World achieving a near 1:1 attach rate with the new console. The company has announced a new, shareholder-friendly dividend policy with a payout ratio of 60%. And yet, the stock is down approximately 24% from its all-time highs of August 2025.
Why is this happening? Because “Mr. Market” is obsessed with a temporary compression in gross margins. He sees the costs of a hardware launch, the bite of semiconductor inflation, and the looming shadow of protectionist tariffs, and he panics. He sees a “hardware company” facing a cyclical downturn. He looks at the recent financial results where gross margins collapsed from over 60% to 36.2% due to the hardware mix 5, and he assumes the profitability of the business is broken.
I see something different. I see a “Disney of the East” that has successfully transitioned its user base of 400 million Nintendo Accounts to a new platform. I see a company that has strategically front-loaded nearly ¥500 billion in inventory to inoculate itself against supply shocks. I see a business trading at a valuation that implies zero growth for its intellectual property, right on the eve of its second major motion picture release.
The market is pricing Nintendo as a cyclical consumer electronics manufacturer just as it completes its metamorphosis into a secular IP royalty engine. This report will strip away the noise of the daily ticker and analyze Nintendo through my 5-Pillar Framework.
I will look at the durability of its Economic Castle, the horsepower of its Financial Engine, and the Margin of Safety offered at today’s price.
