Image source: NVIDIA. 

A report from Eurogamer says that Nintendo's (OTC:NTDOY) upcoming NX console will be powered by an NVIDIA (NASDAQ:NVDA) Tegra processor.

"NX is a mobile games machine, albeit one with a twist -- principally that the unit can plug into a base station that transforms it into something more akin to a conventional console," Eurogamer writes.

Given that the NX seems to be a "mobile-first" gaming product, it's not surprising to see Nintendo use a mobile-style system-on-a-chip to power the device.

In this column, I'd like to go over what this return to a major game console could mean for NVIDIA.

Wii U hasn't been a big seller

Nintendo's last major game console, the Wii U, wasn't exactly a smash hit. Since its release in late 2012, the device has apparently sold just over 13 million units. The prior-generation Nintendo Wii, on the other hand, enjoyed lifetime sales of over 100 million units since its launch in late 2006 (meaning that average annual sales of the Wii have far surpassed average annual sales of the Wii U).

Perhaps the NX might help to improve Nintendo's game console shipments, but that's not an assumption that I'd be willing to make without seeing some hard shipment data.

At any rate, if we assume that the NX sells about as well as the Wii U, NVIDIA would be looking at about 13 million Tegra unit shipments over the course of about four years. If we assume an average selling price of around $30 per NX-bound Tegra chip, that could translate into revenue of approximately $390 million in that time. 

Additionally, the gross profit margins on a console-bound Tegra are likely to be well below corporate average (typical for the company's Tegra processors in general). If we assume gross margins of around 35%, this would translate into around $137 million in additional gross profit over a four-year period.

Putting this opportunity into context

NVIDIA brought in just over $5 billion in revenue in its last fiscal year at a gross profit margin of 56.1%, or around $2.81 billion in gross margin dollars.

If we assume that the $390 million in revenue and $137 million in gross margin dollars are split evenly over a four-year period, this would mean annual revenue and gross profit contributions of just $97.5 million and $34.25 million, respectively.

In other words, it would be a proverbial drop in the financial bucket and not a reason to go out and buy NVIDIA stock today if you weren't interested in the story before.

Why would NVIDIA go after this opportunity, then?

It seems to me that the Nintendo NX is using an off-the-shelf Tegra processor, not any sort of custom chip. Given that the Tegra chip itself is going to be made anyway, it probably won't take a lot of effort to support the Nintendo NX design win.

In other words, it's an opportunity for NVIDIA to leverage the investment that it has already made in Tegra. If the NX can bring in millions in incremental revenue and profit, even if it's not going to be a fundamental financial game changer, why not go for it?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.