Nintendo Switch 2 Smashes Records, But Hedge Fund Crossroad Capital is Looking at Something Deeper
TL;DR
- Crossroads Capital had a strong Q3 2025, returning 6.4% net (YTD up 34.1% net), driven by Nebius Group and FTAI Aviation.
- Nintendo (NTDOY) is their largest position despite a -3.09% drag in Q3. The new Switch 2 console cleared 10 million units in its first four months, making it the fastest-growing gaming hardware in history.
- The fund sees Nintendo's long-term value not just in hardware sales, but in its dual-platform strategy (monetizing the legacy 100M+ Switch 1 base while scaling Switch 2) and the software/ecosystem transformation.
I was going through the Q3 2025 investor letter from Crossroads Capital and wanted to share their fascinating thesis on their largest position, Nintendo (NTDOY). Crossroads Capital ended Q3 2025 up 6.4% net, bringing their YTD return to 34.1% net. The fund's managers credit a market that has evolved into something closer to "antifragility" for helping the overall portfolio's strong performance.
The fund's conviction in Nintendo is built on a new console cycle that is tracking far ahead of expectations. The Switch 2 has already sold over 10 million units in its first four months (through September), making it the fastest-growing dedicated gaming hardware in history. Management subsequently raised its full-year guidance to 19 million units, and Crossroads' internal expectations suggest the installed base could exit the year around 24–25 million units. Crucially, the fund emphasizes that the core long-term value lies in Nintendo's dual-platform strategy: using backward compatibility and a blended library to monetize both the massive legacy Switch 1 base (100M+ active players) and the rapidly scaling Switch 2 base. This setup allows the business to simultaneously harvest record cash flows from a mature platform while seeding an even larger successor, a combination the fund believes remains overlooked by the broader market.
Outside of gaming, the fund highlighted two other high-conviction positions that contributed significantly to returns. Nebius Group (NBIS) moved sharply higher after announcing a multi-year, $19+ billion AI infrastructure agreement with Microsoft. Crossroads notes the quality of this revenue is highly resilient, as it supports Microsoft’s own strategic internal AI workloads. Further, they highlight that Nebius has already secured roughly 1 GW of contracted power (with line of sight to 2.5 GW), which they argue is becoming the primary bottleneck in the AI buildout. Separately, FTAI Aviation (FTAI) is held as a deeply mispriced opportunity. The fund sees FTAI as a vertically integrated industrial platform that uses its "Module Factory" to manufacture 'green time' on aging jet engines (CFM56 and V2500) at a structurally lower cost than OEMs. By offering immediate, high-margin part availability, FTAI acts as a high-velocity utility and is capitalizing on the extreme supply constraints in the aftermarket aviation space.
What does the community think of the Nintendo thesis? Is the market correctly pricing the risk of a new console cycle, or is the dual-platform strategy a legitimate competitive advantage being overlooked?
Source: https://hedgefundalpha.com/investor-letters/crossroads-capital-q3-2025/
Posted Dec 10, 2025, 3:05 PM UTC