The surge in demand for artificial intelligence (AI) data centres is reshaping the video game industry, presenting both challenges and opportunities for major players like Nintendo and Sony. As companies race to secure components needed for AI infrastructure, rising costs have led to significant price increases for gaming consoles, prompting concerns about the sustainability of current business models.

Shares of Nintendo, known for its iconic Super Mario franchise, have dropped nearly 30% this year, while Sony’s stock has declined by about 20%. Rising component prices, driven by intense competition with AI data centre suppliers, are cited as a major factor behind these declines. Nintendo’s upcoming Switch 2, for example, incorporates chips from Nvidia, SK Hynix, and Arm—companies heavily focused on meeting AI-related demand. According to Nintendo, tariffs and component costs are expected to add approximately $624 million (¥100 billion) to its expenses this year alone. Industry analysts note that memory shortages, particularly those affecting suppliers like SK Hynix, could persist until 2030 or beyond.

As a result, Nintendo and Sony have increased prices on their flagship consoles. The cost of the most expensive PlayStation 5 model now approaches $900, with analysts predicting that the next generation could exceed $1,000. Microsoft has similarly raised prices for its Xbox Series X. However, companies face a trade-off: further price hikes risk reducing the number of consoles sold. Nintendo anticipates its Switch sales dropping from roughly 20 million units to 16.5 million in the current financial year. Sony has stated it may need to explore new sales approaches for future PlayStation models, including potential changes to its business model.

The pressure on hardware extends beyond console makers. Declines in console and PC sales could have ripple effects on third-party game developers like Take Two Interactive and Ubisoft. This situation underscores the complex interplay between technology and media within the gaming sector.

In response, some industry observers suggest companies may increasingly leverage their intellectual property through media adaptations. Nintendo’s Super Mario Galaxy movie, which generated over $1 billion at the box office, exemplifies this trend. Additionally, there is growing interest in developing games that do not rely on cutting-edge hardware. Nintendo’s history supports this approach; while its Wii U console underperformed, both the Wii and Switch succeeded by emphasizing novel gameplay experiences over raw processing power. Similarly, popular games like Stardew Valley demonstrate that titles designed for lower-spec hardware can achieve significant success.

Looking ahead, console manufacturers face a difficult strategic environment. Competing for scarce components against large investors focused on AI infrastructure is proving challenging. Innovations in gameplay and new pricing or sales models may become necessary to navigate the evolving landscape of the gaming industry.