E3 is the world's largest trade show for the video game industry. Hosted every year in June, the event brings together some of the biggest studios like Microsoft, Ubisoft, and Square Enix, which typically make announcements about upcoming games and products

One of the headline events every year is the Nintendo (NTDOY 0.14%) presentation. Here are three things investors should watch when the Japanese company makes its online E3 appearance on June 15.

Adult and child playing video games and smiling.

Image source: Getty Images.

A new Switch device

Gamers and investors alike have been waiting patiently for an announcement on upgraded Switch hardware, rumored to be coming for over a year now. The original hybrid console and mobile system launched in 2017, so the technical specifications could use an update, especially with next-generation consoles from Microsoft and Sony released in the past year.

Many news outlets have dropped rumors that this new "Pro" hardware (or whatever it ends up being called) is coming sometime in 2021, but Nintendo is always secretive with product launches, so nothing has been confirmed yet.

But sources have told Bloomberg that the new Switch will have upgraded processing power and graphics and will possibly use NVIDIA's AI rendering technology called DLSS. It is also expected to have a larger screen than the original Switch with better resolution.

What would a new Switch mean for Nintendo's business? The main benefit would be to extend the Switch's lifecycle, bringing more consistent and sustained profits to Nintendo. In the past, Nintendo's profitability has been extremely choppy due to some flops on the hardware side (looking at you, Wii U), and it is why the stock trades at a trailing price-to-free cash flow (P/FCF) ratio of 13. If the Switch update can help extend consistent demand for Nintendo games and prove its current profitability is here to stay, that could be a great sign for Nintendo shareholders.

Breath of the Wild sequel

With the launch of the original Switch in 2017, Nintendo released a new game for the Zelda franchise called Breath of the Wild. The adventure and role-playing game was a hit among casual and hardcore gamers alike, with the title getting fantastic reviews. Breath of the Wild has sold over 22 million copies since launch, making it the fourth most popular Nintendo title on the Switch platform.

Breath of the Wild's success has led Nintendo to produce a sequel, which it confirmed was in the works in 2019. Game development has been ongoing for two years now, so there's a definite possibility Nintendo will announce Breath of the Wild 2 at this E3 event, possibly in conjunction with the release of the Switch Pro. 

Another successful Zelda game would be a great indicator that Nintendo's current profitability and cash generation are here to stay. The majority of Nintendo's profits come from software and game sales, so it is important the company not only comes out with good gaming systems but good games as well. With Mario Golf, new Pokemon titles, plus whatever gets announced at E3 coming in the near future, Nintendo has a solid pipeline of games for the next year.

Partnership with Microsoft 

There have been hints over the past year or so that Nintendo and Microsoft are working to extend their relationship. Microsoft already has a large presence on the Switch with many of its games available to play on the platform. As with the Switch Pro, nothing has been confirmed from the two companies yet, but there have been plenty of news leaks with Microsoft executives having Switch hardware in the background at Xbox presentations on multiple occasions.

A likely partnership could come in the form of the Xbox Game Pass subscription coming to the Switch. This would add to the value proposition of getting a Switch (or Switch Pro), while also benefiting Xbox/Microsoft by giving access to its subscription to the 84.5 million Switch units in customers' hands.

Investors should remember that these three things are not guaranteed to happen this week but seem reasonably likely to occur based on past events and Nintendo announcements. Either way, with the company likely to steal headlines at the biggest video game trade show of the year, anticipate major news coming from Nintendo on June 15.