Shares of Nintendo fell sharply in Tokyo on Monday after the gaming giant announced price increases for its highly anticipated Switch 2 console, while investors also expressed concerns over the company’s software lineup and growth outlook for the coming year.

The Kyoto-based gaming company saw its shares drop about seven per cent as the market reacted to a combination of higher console prices, cautious financial guidance, and fears that Nintendo may not yet have enough blockbuster titles to sustain long-term momentum for the next generation console.

Although Nintendo reported strong hardware sales for the financial year ended March, analysts said the company’s forecast for the new fiscal year failed to excite investors.

The company has historically been known for issuing conservative earnings guidance, but market watchers believe the latest outlook may reflect deeper concerns about its future software pipeline and the pace of adoption for the Switch 2.

Nintendo successfully prolonged the life cycle of the original Switch through the release of popular franchise titles such as The Legend of Zelda and other first-party games. It also recorded successes with newer releases including Pokemon Pokopia.

However, some analysts believe the company currently lacks enough major blockbuster releases capable of driving rapid growth for the new console generation.

Morningstar analyst Kazunori Ito said Nintendo’s own shipment projections for games raised concerns about management’s confidence in its upcoming titles.

“The year-on-year decline in game shipment guidance risks signaling that Nintendo lacks confidence in its pipeline,” Ito wrote in a note.

Despite those concerns, he argued that the market reaction may be overly pessimistic because user engagement for gaming consoles often strengthens significantly during the second year after launch.

“However, as user engagement typically accelerates in the second year of a console cycle, we view this as too pessimistic,” he added.

Nintendo also announced fresh price increases for the Switch 2 console. The Japanese-language Switch 2 Japan model will increase by 10,000 yen to 59,980 yen beginning May 25.

The company further disclosed that prices in markets including the United States will rise from September 1.

The price adjustment comes at a difficult time for the gaming industry as electronics manufacturers continue to grapple with rising component costs, particularly the surge in memory chip prices.

Industry analysts noted that Nintendo’s strong appeal among casual gamers could make the company more vulnerable to price sensitivity compared to competitors with more hardcore gaming audiences.

Jefferies analyst Atul Goyal said the second year of the Switch 2 cycle would likely be critical for Nintendo’s long-term success.

According to him, expectations remain that the company could still unveil a major Mario title capable of reigniting investor confidence and driving software sales.

“The second year is crucial and our non-consensus view is that it will release a Mario AAA game this year,” Goyal wrote in a note.

He also argued that Nintendo may have deliberately set a low earnings forecast, noting that the company has consistently exceeded its initial operating profit guidance over the past four fiscal years.

Unlike rival Sony, Nintendo remains heavily dependent on its core gaming business despite growing popularity of its characters and intellectual property in films, merchandise, and theme parks.

Sony, by contrast, has broader revenue streams and greater flexibility to absorb rising production costs.

Analysts believe Sony’s longer-established PlayStation 5 gives the company a stronger position to pass increasing hardware costs on to consumers.

Asymmetric Advisors analyst Amir Anvarzadeh noted that Sony is better positioned to handle rising memory chip prices because of the PlayStation 5’s maturity in the market.

Meanwhile, Sony’s shares rose about 10 per cent in Tokyo on Monday after the company forecast lower sales but stronger profits for its gaming division.

Sony also announced plans for a new joint venture with TSMC to develop and manufacture image sensors in Japan as part of efforts to improve efficiency and control production costs.

Bernstein analyst David Dai said Sony’s results reinforced investor confidence in the company’s ability to protect profitability even with reduced PlayStation shipments.

“These results were at least validating of the thesis that Sony can protect group profits by scaling back PS5 shipments,” Dai wrote in a note.