As leaked details about Nintendo's Switch 2 continue to surface, the game industry finds itself a little divided.

On one side are the optimists placing their hopes for a return to growth upon the shoulders of Nintendo, one of gaming’s most storied companies. On the other side, some skeptics view the Switch 2 as an incremental upgrade — or even a cash grab.

As with all new Nintendo releases, nostalgia for the company and its (mostly) vaunted track record has generated furious speculation around the Switch 2. Thus far, the only official word out of Kyoto has been a two-minute first-look trailer that’s light on specifics.

While the world waits for more details to be announced in April’s Nintendo Direct showcase,  it’s worth examining both sides of the divide to better understand how this new console could shape Nintendo’s business moving forward. 

Making the Switch

Let’s start with what we know for certain. Firstly, we know the original Switch was a massive success. It has racked up lifetime sales of more than 150M units, and only the PlayStation 2 and Nintendo DS consoles have sold more over their respective lifetimes than the Switch has thus far.

The Switch’s hybridization of small-screen portability and console-style gameplay made it a mainstay in many gamers’ rotations, whether at home or on-the-go. Additionally, its lineup of excellent first-party releases and its collection of ported indie gems gave it broad appeal to huge swathes of the market. 

Among the console’s few weaknesses, however, was its underpowered hardware. This made it difficult for many third-party titles and publishers to access the Switch audience, resulting in a heavy reliance on Nintendo’s own first-party games as the revenue driver.

Fortunately for Nintendo, the company was able to support the Switch with several heavy-hitting titles from its flagship franchises, both at launch and throughout its lifecycle —Legend of Zelda: Breath of the Wild, Mario Kart 8, Super Mario Odyssey, and Animal Crossing: New Horizons to name a few. There are many more.

Further, the company consolidated its development efforts; rather than supporting both handheld and tethered devices with first-party content as before, Nintendo unified content production under a single hybrid device.

This time around, Nintendo seems less prepared with launch titles, based on what we know thus far. The aforementioned trailer seemingly showcased a new Mario Kart title, but rumors also suggest a new 3D Super Mario title is in the works, as well as a new Legend of Zelda remake. Other previously-confirmed titles like Pokémon Legends: Z-A, Metroid Prime 4: Beyond, and Xenoblade Chronicles X: Definitive Edition may see release for both Switch and Switch 2. All told, this may not seem like Nintendo’s strongest lineup, but the company will surely have other unannounced titles in the pipeline.

Two other factors should bolster the Switch 2’s launch library. First is its backward compatibility: The new console will be able to play both physical and digital versions of most Switch games. This should help to make the decision a little easier for existing Switch owners considering an upgrade.

Second is that the Switch 2 will have better technical capabilities. Don’t expect the device to melt any faces with its graphical performance, but it is expected to be on par with PS4-era devices. This should allow a much larger share of third-party titles to be ported to the new device, lowering Nintendo’s reliance on first-party titles.

This could prove particularly powerful for so-called ‘black hole games’ like Fortnite, Roblox, and Genshin Impact that provide ongoing live service revenue (from which Nintendo will receive a cut). Even if some of these games were previously available on the original Switch, their performance should be improved to the point that Nintendo’s console becomes an attractive option.

Another under-discussed aspect of the technical leap from the Switch to Switch 2 is the incorporation of Nvidia’s DLSS technology. DLSS, short for Deep Learning Super Sampling, is a machine learning-based method for upscaling the image quality of games running at lower resolutions to higher frame rates. DLSS does all of this at a lower power cost (read: longer battery life) than filling in the extra detail natively. This could help to close the perceived fidelity gaps between the new console and its more technically advanced competitors from Sony and Microsoft (to say nothing of the rising tide of PC handhelds, such as the Steam Deck or ASUS Rog Ally). The kicker? DLSS is exclusive to Nvidia chips, which the Switch 2 is reported to have and other PC handhelds do not.

Beyond the aforementioned technical upgrades, the Switch 2 is expected to follow its predecessor’s approach fairly closely. It has a similar form factor, though roughly 25% bigger, a new charging port location, and updated Joy-Con design.

Switching Costs

Perhaps the biggest unknown yet to be addressed by either Nintendo or the many leaks and rumors around the new device is its pricing.

In the eight years since the Switch launched, the value of the Japanese yen has fluctuated significantly. The device was released in early 2017 at a price of ¥29,980 in Japan ($262 at the time), which compared favorably to the $299 US launch price. Though Nintendo still sells the Switch at those same prices today, that same ¥29,980 is only worth about $201 (at time of writing). In real terms, customers pay less for Nintendo hardware in Japan. It is therefore more valuable for the company to sell hardware in the US. 

The $299 debut price of the Switch in 2017 is worth closer to $387 today, which would make a $399 launch price for the Switch 2 a reasonable bet. In Japan, though, that would equate to nearly ¥60,000 — close to double the inflation-adjusted price of the original Switch in Japanese yen. That would make the Switch 2 more expensive than a Japanese PlayStation 5, according to Ars Technica.

It will be fascinating to see how Nintendo navigates this challenge. According to President Shuntaro Furukawa, the company is at least “aware that inflation is currently rising and that the exchange rate environment has changed significantly since the launch of the Nintendo Switch in 2017”. Perhaps it will adopt different prices for different regions, or even return to its region-locked releases of yesteryear.

Nintendo has also announced it will be discontinuing its My Nintendo Gold Points loyalty program, effective March 25th, and has also stated that Nintendo Switch game vouchers will not be eligible for redemption of Nintendo Switch 2 games.

While Nintendo has not given any rationale for these moves, it seems clear the company is tightening the financial screws in advance of its next console launch. One possibility is that the company will move toward game price increases across the board (say, to $70 each) and subsequently will look to increase the price of the Switch 2 game vouchers. 

Nintendo Power

While the Switch 2 is an underpowered device by modern standards, it’s important to recognize this approach is very much par for the course for Nintendo. The company has long operated under a philosophy of “Lateral Thinking with Withered Technology.”

This approach was first articulated by longtime Nintendo employee and original creator of the Game & Watch handheld system Gunpei Yokoi. It refers to finding creative new ways (“lateral thinking”) to leverage existing tech that is cheap and well understood (“withered technology”).

Nintendo took this same approach with the Game Boy (relative to Sega’s Game Gear) and the Wii (as compared to the PlayStation 3 or Xbox 360). This allows Nintendo to both target a different segment of the audience and, crucially, launch with better unit economics than its competitors.

Viewed through this lens, the perceived incrementality of the Switch 2 makes much more sense. All of these moves point to a conservative company seeking to minimize risk at a precarious time for both the game industry and the broader Japanese economy. 

That doesn’t mean the Switch 2 won’t be successful, though. While it is unlikely to reach the same heights as its predecessor, the low-hanging fruit of opening up its platform to more third-party games should almost necessarily make the console a hit. If Nintendo can double down on that with more successful iterations of its typically high-quality franchises, the company could deftly thread the needle between extending the runway of the Switch line of hardware while also holding off competition from increasingly popular PC handhelds. 

But, to what end? Near-term upside aside, it seems unlikely the Switch 2 will be a long term source of sustainable growth for Nintendo. This should be concerning to investors, given that everything else — theme parks, mobile games, transmedia, and so on — stems from that central business. The company’s annual playing users count has already begun to plateau. If we assume the new device sells at some fraction of the rate that the original Switch did (20% less? 30%?) then it follows that players and game sales will struggle to keep pace with the difficult comps from the heyday of the original Switch. 

Consider also that most consumers’ first interactions with games are no longer through Nintendo devices, but rather tablets or smartphones. This was already the case with the original Switch, of course, but the company’s decision to lean further away from mobile games in subsequent years seems odd in that context.

During a recent Q&A, Furukawa was pressed on the company’s plans to introduce new generations of gamers to Nintendo’s content. His response was that the company is “utilizing theme parks, official stores, visual content, and mobile content to generate interest in [the] core business, which is the dedicated video game platform business.” He also mentioned that “smart devices will take on a very important role in this endeavor.”

The recent success of Pokémon TCG Pocket will undoubtedly help with that (though Nintendo only takes a reported 32% of profits from that title), but aging titles like Fire Emblem Heroes, Super Mario Run, and Mario Kart Tour simply won’t move the needle. The company is “continuing to develop new [mobile] game applications,” according to Furukawa, but nothing has been formally announced and it’s clearly not a core part of Nintendo’s strategy.

Beyond mobile, Nintendo can look forward to a sequel of the hit "The Super Mario Bros. Movie" in 2026, and perhaps further sequels and spin-offs yet to be announced. But this feels no less iterative and short-term than the Switch 2. The company is also continuing to expand its theme park business, with Super Nintendo World area in Universal's park in Orlando, Florida, set to open this May.

So where does all that leave us? If the Switch 2 is expected to sell worse than the original Switch, then how should we think about the company’s long-term growth? Perhaps we should stop viewing Nintendo as a major growth story and simply recognize that the company — similar to the industry as a whole — now operates in a more mature era and cares most about serving its long-time player-base rather than expanding into newer (and potentially riskier) markets and demographics.

That may not be ideal for long-term investors — especially now that the market is already pricing in growth from the Switch 2 — but at least Nintendo’s core fans will have no shortage of fun to look forward to in the years to come.

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