Cooling AI Trading Drives Rotation in Japanese Game Stocks, Nintendo Sees Largest Intraday Gain in Two Months

Nintendo Co. rose as much as 6.8% in Tokyo trading on Tuesday, the biggest intraday gain in two months, and recorded its third consecutive day of gains. Year-to-date, Nintendo's stock price has fallen by more than 28% and has just experienced its longest monthly losing streak in a decade.

The Nikkei 225 index has risen by about 20% so far this year, mainly driven by AI hyperscale computing power demand, with memory chips, chip equipment and related companies leading the gains previously. However, as valuations have risen rapidly, investors have begun to worry about whether AI concept stocks can continue to digest high expectations. Japanese game stocks generally strengthened on the day, with Bandai Namco and Konami both rising by more than 9%.

The content and gaming sector, previously regarded as an "AI loser," has therefore seen a catch-up rally. Japanese game stocks such as Nintendo had previously significantly corrected due to potential AI substitution risks, hardware sales pressure, and tight supply of memory chips. Now, as funds withdraw from highly valued technology stocks, they have become a short-term safe haven choice.

Amir Anvarzadeh, a Japan equity strategist at Asymmetric Advisors, said that Tuesday's market was part of a rotation "from AI tech stocks to pressured stocks." He believes that the huge gains in the AI sector are difficult to sustain in the long term, and investors are re-searching for targets with relatively low valuations and positions.

Tomo Kinoshita, a global market strategist at Invesco Asset Management Japan, pointed out that Nvidia is about to release its earnings report this week, and cautious sentiment towards technology stocks is rising. Many investors choose to temporarily reduce their holdings of AI stocks before the earnings report, which exacerbates sector rotation in the Japanese market.

For Nintendo, this round of fund rotation provides a short-term recovery opportunity, but fundamental disagreements remain. The market is still concerned about the potential impact of tight memory chip supply on hardware sales, and whether the upcoming game lineup can effectively support the Switch 2 cycle.