Is Nintendo the Best Gaming Stock to Own?

A lot can happen in 24 hours. On Wednesday evening UK time, I jumped onto a plane, Melbourne bound. At that point, the biggest news in the gaming world was the positive reviews of Sony’s PlayStation VR headset.

By the time I got off the plane in Melbourne at 6:45am Friday, everything had changed. As soon as I switched on the computer, Nintendo’s name was spread across almost every major consumer tech website.

Nintendo has now given us a proper look at its next-generation gaming console. I wrote about this upcoming console a couple of months back. I said that if the ‘NX’ (its project code name) was successful, it could see great returns for Nintendo. But it could also see the stock price of NVIDIA rise. The speculation is that NVIDIA would be making the custom graphic processing units (GPUs) for the NX.

Nintendo’s new console isn’t the NX anymore. It’s the Nintendo Switch. And as the name suggests, the Switch is one versatile gaming system.

Our first look presents it as a traditional game console, like the Xbox or PlayStation. But it’s the added mobility that makes Switch stand out. The control comes apart and attaches onto a tablet that normally rests inside the console. You can then take your game straight from the screen onto the tablet, and anywhere you want to take it.

The first look sees the Switch ‘pair’ with other Switch users. And each of the detachable controllers can enable multiplayer on the go. It actually reminds me of the initial release of the Nintendo Wii — just not quite as interactive.

All in all, it looks like the Switch is going to be a fun gaming console. And it looks like it’ll come into its own for mobile on-the-go multiplayer gaming.

However, will this take Nintendo back to the top of the gaming industry? Will the Switch see Nintendo streak back past the likes of Sony and Microsoft?

Well, the short answer is no. And here’s why…

Right idea, wrong focus

The Switch will sell. It’ll probably sell pretty well. But it won’t get near the popularity of PlayStation or Xbox. It just doesn’t appear to be as powerful as both of those ‘pure’ gaming consoles.

It will be impressive still. NVIDIA’s custom-built Tegra chip will still make Switch one of the best portable platforms available. But it sits in this weird void between ‘pure’ consoles and smartphone gaming.

This isn’t a smart business move.

Think about it. You can play some impressive games on your smartphone these days. Everything from NBA 2K17 to Minecraft. If you want mobile gaming, most people turn first to their smartphone. And it’s not like Nintendo isn’t aware of this either. Just a month ago, it announced Mario was finally going to Apple’s iOS.

Mario on iPhones is a huge change of direction for Nintendo, which was always against mobile gaming. Now it switches Mario to smartphone and then brings out the Switch. I’m confused. It just doesn’t make sense. I think Nintendo might be a bit confused too. And that’s worrying.

I don’t doubt the Switch will be fun. But it’s also another device that people will have to carry around. I already carry my MacBook and smartphone when I travel. Two devices are plenty. To then worry about a third? That’s once device too many.

Another thing going against the Switch is the surge in VR gaming. Samsung’s flagship S7 range is compatible with the Samsung Gear VR. Google’s latest Pixel range of phones will all work with Google’s new Daydream VR. Even Microsoft, with its HoloLens, will probably have some kind of Xbox (or its new Xbox Scorpio) integration.

Mobile gaming is merging into VR gaming. And Nintendo is taking aim at portable console gaming. I can’t help feeling that it has the right idea, but its focus is on the wrong hardware.

I can’t see the Switch being a resounding success of the original Nintendo or the Wii. There’s just not enough there to suggest it’s going to change the whole industry like those two previous consoles did.

Nintendo really needed the Switch to be a game changer; a revolution. It’s not. It’s more like an evolution in gaming consoles.

Nintendo needed revolution but gave us evolution

Nintendo’s future lies in immersive reality. Gaming where the real world and the digital world converge as one, so you almost can’t tell what’s real and what’s virtual.

Another term for this might be ‘mixed reality gaming’. We’ve already had a glimpse at how big this could be with Pokémon Go. This is the focus Nintendo should be taking. This is where the future of gaming lies. Not in portable consoles, but in gaming where your digital world is part of your physical world.

It’s gaming beyond virtual reality — it’s so immersive that it turns real life into a big game. Now that’s where Nintendo could have been game changing.

The Switch feels like the console it needed to make just so it had a new console to sell. The Wii U was really a flop. Nothing has come close to the immense success Nintendo created with the Wii. The Switch won’t get near it, and history will likely see it in the same light as the Wii U.

That brings us to the big question: Is Nintendo the best gaming stock to own?

No, it’s not.

Nintendo’s stock price has reflected the initial hype of a new console and was trading up 3.3% yesterday. But I don’t expect it to last — unless it’s hiding something about the Switch. But I think the only thing that could make the Switch revolutionary is if it had some kind of immersive reality capability.

I don’t think it does. Nintendo is up 60.85% year to date, which is an outstanding return. But I think the Switch will drag on the stock more than help it.

I’ve been very positive on Nintendo for the last two years. But with Switch, I think Nintendo has blown a big opportunity to soar higher. Instead, I think Nintendo will plateau and provide little return for investors over the next year.

When it comes to the best gaming stock to own, I think others might be a better bet than Nintendo right now. In fact, immersive reality gaming and the rise of eSports could be the next great opportunity to invest in the gaming industry.


Sam Volkering,
Editor, Money Morning

Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

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