It’s been a week full of exciting developments in the world of gaming. While Nintendo is expected to unveil the Switch 2 in coming weeks and to start shipping it in coming months, leaks have already begun to surface, and some accessories for the new console were even showcased at the Consumer Electronics Show (CES) in Las Vegas.
However, the most intriguing news from our perspective is the rumor surrounding Microsoft’s plans to launch its next Xbox console, reportedly called Xbox Prime, in 2026. If this proves true, it could dramatically accelerate the end of the current console cycle and bring forward the transition to the next generation. Indeed, as the Xbox Series X|S launched in 2020 and console generations typically last seven or eight years, Microsoft releasing the next Xbox in 2026 would be quite a surprise.
There are two primary reasons why such a move would make sense. First, the rapid evolution of graphics cards, largely driven by massive investments in AI, has made the chips in current consoles outdated. During CES, Nvidia unveiled its new RTX 5000 series GPUs, showcasing how AI-driven innovations are now benefiting gaming hardware as well. The new GPUs feature DLSS 4, which leverages AI to significantly boost frame rates (essential for fluid animation), enabling 4K gaming at 120+ fps, far surpassing the PlayStation 5’s 60 fps.
Secondly, Xbox shipments have consistently lagged behind the PS5 and Nintendo Switch in this cycle, suggesting that Microsoft may look to jump-start a new generation sooner rather than later to regain momentum.
An accelerated transition to the next console generation could provide a much-needed boost to the gaming industry, especially as software growth has been soft recently. Game software grew by just 4% in 2024 through November, but a new console cycle could spark an uptick as soon as 2026 or 2027.
In the meantime, game studios are likely to focus on leveraging AI tools to enhance both productivity and profitability. As we’ve discussed in recent months, companies like Google, Roblox, and Tencent have developed Generative AI models that can create 2D/3D environments and complex actions, dramatically reducing development time and costs.
Indeed, AI is already making significant inroads in game development. A recent survey by venture firm Andreessen Horowitz found that 73% of studios are currently using AI tools, and nearly all of them report productivity gains and cost savings of over 20%. This should obviously support margins, even in the current soft growth environment.
