Shares in leading video game companies Nintendo and Sony have declined significantly this year amid rising costs linked to the expansion of artificial intelligence (AI) technologies. Nintendo, known for its iconic character Super Mario, has seen its stock fall by nearly one-third in 2024, while Sony’s shares are down around 20 percent.
The surge in AI development has driven a rapid increase in demand for key electronic components used in data centers, causing prices to soar. This trend has put pressure on console manufacturers, who have responded by raising the prices of their flagship products. Nintendo and Sony both implemented price hikes on their latest consoles during the year, and Microsoft doubled the price of its Xbox Series X in 2023. The top-tier version of Sony’s PlayStation 5 now retails for close to $900, with analysts forecasting its successor to surpass the $1,000 mark.
Component scarcity is at the core of the issue. Nintendo’s upcoming Switch 2 incorporates parts from major suppliers such as Nvidia, SK Hynix, and Arm, all of which prioritize delivering hardware for AI data centers. These suppliers face demand that vastly exceeds production capacity, resulting in substantial cost increases. Nintendo estimates this year’s combined expenses from elevated component costs and tariffs will total ¥100 billion ($624 million). Meanwhile, SK Hynix has warned that the memory supply shortage could persist until at least 2030.
The rising costs and tariffs have forced gaming companies to adopt a more premium pricing strategy, a shift that risks reducing their consumer base. Nintendo anticipates a decline in Switch sales from about 20 million units to 16.5 million in the current financial year. Sony has indicated it may need to explore new sales models for its next PlayStation release to adapt to these market pressures. A sustained downturn in console and PC hardware sales could also adversely impact third-party developers such as Take Two Interactive and Ubisoft, which rely on a broad user base.
Industry insiders note that the gaming sector traditionally straddles both technology and media domains. With escalating technology costs limiting hardware innovation, companies may focus increasingly on their intellectual properties through avenues like film adaptations. Nintendo’s recent “Super Mario Galaxy” movie, which surpassed $1 billion in box office revenue, exemplifies this strategy.
At the same time, there is interest in designing games and consoles that do not depend solely on cutting-edge hardware. Nintendo, with its Wii and Switch consoles, succeeded by emphasizing novel gameplay over raw performance. Similarly, independent developers have found success creating titles that can run on modest systems, such as the critically acclaimed “Stardew Valley,” which can operate on a $45 Raspberry Pi computer.
However, innovation in this direction is challenging, as shown by the failure of the Wii U, Nintendo’s less successful attempt between the Wii and Switch. Given the vast financial resources devoted to AI infrastructure by major tech companies, console manufacturers face growing difficulties competing for components. As a result, the industry may need to rethink its approach to hardware development and market strategy in the age of AI.