Many artificial intelligence (AI) stocks have seen declining share prices to start the second half of 2026. Skittishness around AI spending on data centers and growth from start-ups like Anthropic and OpenAI have Wall Street concerned at the moment.
This has led to a rebound in stocks considered to be AI losers, such as Nintendo (NTDOY +0.43%). The video game maker has seen its stock price collapse amid fears of supply being crowded out for memory chips, but has since rebounded more than 30% during the past 30 days.
Here's why I think Nintendo stock will outperform the "Magnificent Seven" in the second half of 2026, and why it is a buy right now.
OTC: NTDOY
Key Data Points
An anti-AI stock with earnings growth potential
Last year, Nintendo released the Nintendo Switch 2, a gaming console that followed up on its hit Nintendo Switch. In the first 12 months after launch, it has already sold close to 24 million units, confirming that gamers still love the form factor for playing.
However, with upgraded device specifications comes more memory chip usage per device. Memory chip prices have soared during the past year due to growing demand for AI-related services, and investors have feared this will crowd out Nintendo's supply. Nintendo has responded by raising the price of the Nintendo Switch 2 in the U.S. by $50, up to a $500 selling price.
Although this will be a slight headwind for Nintendo, the company is showing so far that it will not be the end of the world financially. It still generated about $900 million in operating income last quarter, with revenue up close to its record of more than $15 billion in the middle of the COVID-19 pandemic, only a year into the Switch 2's existence.
Image source: Getty Images.
Nintendo's cheap valuation
Once more players get their hands on the Switch 2, Nintendo will start selling more of its popular software titles, which is where it makes a profit. Right now, Nintendo is projecting a net profit of $1.92 billion, down from last fiscal year. This could concern investors, but Nintendo is notoriously very conservative with its forecasts and will likely beat this figure when reporting in the quarters ahead.
Right now, Nintendo's stock trades at a market cap of almost $64 billion, which brings its enterprise value down to less than $50 billion when including the cash and assets on its balance sheet. If Nintendo can show its earnings are growing as Switch 2 players adopt its games, the stock will look cheap relative to its earnings potential, which will likely be priced in later this year. If the memory chip supply crunch begins to unwind, that may be further fuel for Nintendo's share price.
Why the "Magnificent Seven" may struggle the rest of this year, and whether it matters
So far in the second half of 2026, Nintendo is outperforming every Magnificent Seven stock, up 27% since July 1. Microsoft is the only one close, up 26%.
These stocks have generally risen due to the narrative of insatiable demand for computer chips and cloud computing from AI services. If this narrative reverses, the Magnificent Seven stocks could see a pullback for the rest of this year, while Nintendo continues to rebound as more people buy the Switch 2 and start playing games.
In the long run, I still think most of the Magnificent Seven companies will do fine for shareholders. However, Nintendo looks like a much cheaper contrarian pick right now, with the stock set up to deliver solid returns for shareholders for the rest of 2026 and over the long haul. I don't fault anyone for holding Magnificent Seven stocks in their portfolio, but if you are looking at a diversification strategy with new cash deposited into your account, Nintendo may be a good bet right now.
