Prediction: Nintendo Stock Will Soar After April 2

Legacy media has had a rough time in the last decade. Stalwarts such as Walt Disney have struggled mightily versus modern technology competitors, with its stock only posting a 13% total return in the past 10 years. Nintendo (OTC: NTDOY) is one of the few legacy entertainment companies that is thriving.

The Japanese video game maker and burgeoning entertainment giant has delivered a 739% total return in the last 10 years and recently broke through to an all-time high. I think the party is just getting started. Nintendo's next generation begins with some Switch 2 announcements on April 2, which should provide a big boost to the stock.

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Here's why Nintendo stock is an easy buy for your portfolio today.

The Switch 2 is (finally) here

Released in early 2017, the Nintendo Switch took off like wildfire with its hybrid console and handheld features. Combining its gaming hardware into one form factor, Nintendo fans loved the fact you could play the same games on the go or at home on a TV screen with this one device. In the ensuing years, Nintendo has sold over 150 million of these devices to customers, making it the third-most-popular gaming hardware system ever.

Now, Nintendo is finally ready to release its next-generation Switch 2 device. We do not know when the device will officially launch, but the company is going through an overview of the hardware and likely some of its flagship games on April 2. Preorders and then deliveries to customers should follow shortly thereafter.

Just as important as the new gaming hardware will be the new games people can play on the console. Gaming software -- the games, subscription services, and add-on purchases -- is the largest profit driver for Nintendo. It is why its operating income has been positive every year since the Switch was released, because the company consistently releases first- and third-party games that its customers want to play. Active players hit an all-time high of 129 million in 2024 and have grown every year since the Switch became available for purchase.

Nintendo's operating income peaked at $6 billion a few years ago. With an already large playing base and a bunch of flagship first-party games such as Mario Kart ready to release with the Switch 2, I expect Nintendo's operating income to surpass this previous high within a few years.

Driving the entertainment flywheel even faster

On top of gaming hardware, Nintendo has made some major expansions to new entertainment form factors in recent years. It has released a movie for the Super Mario universe, with a sequel coming up in 2026 and a live-action Zelda move in the works. Through a partnership with Universal, it is operating and working on opening four theme parks around the world focused on Nintendo characters.

The company will make some money directly from theme parks and movies. But perhaps more importantly, it will reinforce existing fandom and bring in new fans for its franchises, specifically young kids and families. These new fans will be more likely to purchase the Nintendo Switch 2 and buy some Nintendo games, which is how Nintendo makes money.

NTDOY Market Cap data by YCharts

The next five years look good for Nintendo stock

After seeing declining unit sales and tapering off earnings in the last few years, Nintendo's earnings are set to grow again in 2025 with the launch of the Switch 2 gaming device. Gaming hardware usually operates on a five-to-eight-year cycle, with peak earnings coming within the first few years. The first Switch generation is currently in its eighth year, which is why unit sales have fallen in the last few years. There are only so many Nintendo fans around the world.

The Switch 2 will lead to an upcycle in unit sales again, which will lead to more game sales, which will lead to growing earnings. Over the next five years, I think Nintendo can grow its earnings above its $6 billion previous high, especially when you consider the additions of theme parks and movies.

Today, Nintendo stock trades at a market capitalization of $87 billion. At the end of 2024, it had around $18 billion in net cash on the balance sheet, which brings the company's enterprise value down to around $70 billion. If Nintendo's earnings can surpass its previous high and sustain this level for many years, the stock will be trading at around 10x its current enterprise value a few years after the Switch 2 release.

That looks mighty cheap to me. Despite its run-up to start 2025, Nintendo is a good buy-and-hold for investors today.

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Brett Schafer has positions in Nintendo. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.