Nintendo always has been one of the major players in the video game industry, but this year it may be outmatched as the holiday season is on the way. With the new Xbox and PS updates expected in time for the holidays, there has been a renewed vigor around video games. The stay-at-home economy added a lot to the gaming sector already, but there is usually a large amount of interest in video games heading into and after major console refreshes like we are about to see.

The big question is where this all leaves Nintendo and its popular Switch system. One analyst thinks that Nintendo will be taking a backseat this year.

Wedbush downgraded Nintendo to Neutral from Outperform, due to valuation, as well as a relatively unclear catalyst path.

The boutique brokerage firm said that it continues to expect the company to deliver upside to its 2021 outlook driven by elevated demand for the Switch during the COVID-19 pandemic, but the “beat” appears to be largely priced into the shares at the current level.

Over the coming months, Wedbush sees the potential for downward pressure on the shares from a looming recession, ongoing Switch supply constraints, a somewhat lackluster Switch software pipeline, the upcoming console refresh from competitors Microsoft and Sony, and abandonment of its mobile effort.

In the longer term, it is unclear what will arrive after the Switch, with the 3DS seemingly the company’s last entry into the handheld market. Additionally, Nintendo has yet to detail its streaming ambitions, if any.

Risks to Wedbush’s downgrade could include significant additions to the Switch lineup of hardware SKUs, Switch price cuts, significant additions to the software release slate (potentially including a pair of frontline Pokémon games), a push back into mobile and delays or underperformance for competitors’ products.

Wedbush also pointed out that although domestic retail sales remain strong, worldwide sell-in numbers may be unsustainable given ongoing supply constraints. The software release slate for 2021 isn’t as robust (at least, not yet) as it has been in past years, with Nintendo previously acknowledging that work-from-home will have a large impact on game development. Nintendo also disclosed that it is unlikely to release many new applications on mobile, with mobile serving as a key tenet of the bull thesis.

The Xbox Series X and PlayStation 5 remain on track for launches later this year, with both poised to garner significant mind and wallet share.

Nintendo stock traded up less than 1% Wednesday to $57.24, in a 52-week range of $35.82 to $58.95. The consensus price target is $62.53.

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