Nvidia Looks Primed for a Stock Split Post $1 Trillion Rally (2024)
Carmen Reinicke
·4 min read
(Bloomberg) -- Nvidia Corp.’s scorching rally has added more than $1 trillion in value this year alone, sending it well above the level where it last split its shares. Some see the AI giant well placed to do so again.
The company last announced a four-for-one stock split in May 2021, when it was trading at about $600 per share. Today, the stock is nearing the $1,000 level, extending last year’s 240% surge. While bulls argue that its valuation based on future earnings growth is relatively cheap, some potential investors may balk at the price.
“Probably in the next year or so, I expect the stock to split and that would be able to get some small retail investors into the stock where they think it’s out of reach right now,” said Ken Mahoney, president and chief executive officer of Mahoney Asset Management.
Nvidia shares gained as much as 3.5% at market open Friday, on track for yet another record high close.
The reasoning Nvidia gave for its 2021 split was “to make stock ownership more accessible to investors and employees,” according to a press release. It rallied to about $750 per share by July 19 that year — the day before it started trading on a split adjusted basis. After a 2022 drop, the shares have since blasted past those levels.
Stock splits are a cosmetic move generally enacted to attract smaller investors. The action reduces share price by redistributing the amount of equity over a larger number of stock, but doesn’t change anything about underlying fundamentals or valuation.
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“I’m always of two minds,” said Mike Sansoterra, chief investment officer at Silvant Capital Management LLC, adding that on one hand, stock splits don’t matter much because they don’t change anything about a company’s value.
“But, on the other hand, retail investors psychologically do like to buy things that are $30 instead of $300,” he said. “They tell themselves that it’s less expensive even though it’s absolutely not less expensive.”
To be sure, Nvidia hasn’t made any indication that it would split its shares anytime soon, and with its rally still marching higher, it doesn’t seem to be scaring away all retail investors. It’s one of the most-traded stocks for the retail crowd, alongside Tesla Inc., Advanced Micro Devices Inc. and Super Micro Computer Inc., according to data from Vanda Research.
And, investors that aren’t ready to pony up Thursday’s closing price of about $927 could still buy fractional shares of Nvidia, or hold fewer units.
In addition, no companies in the Nasdaq 100 split their stocks last year amid a market-leading tech rally. That was a reversal from just a few years earlier during the pandemic, when technology stocks soared and spurred splits in some of the largest companies.
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Both Apple Inc. and Tesla Inc. split their shares in 2020 — with the move being the EV maker’s second in a two-years span. Amazon.com Inc. and Alphabet Inc. both split their stocks in 2022. Microsoft, however, hasn’t split its own shares since 2003, when it traded at about $50. It’s now trading at more than $400.
If Nvidia can continue to exhibit the consistent growth on an upward trajectory, a stock split “would make sense,” Mahoney said.
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Nvidia Corp.'s scorching rally has added more than $1 trillion in value this year alone, sending it well above the level where it last split its shares. Some see the AI giant well placed to do so again. The company last announced a four-for-one stock split in May 2021, when it was trading at about $600 per share.
In 2021, Nvidia stock was priced at $583.36 on the day prior to the company announcing its intention to split its stock. That's nearly $180 less than its current stock price, which provides strong support for the theory the company could split its stock in 2024.
Stock splits were far more common back then, so the instances before the 2021 split may be less useful for forecasting purposes in 2024. Now that the stock price is above 2021 pre-split levels again, I'd say Nvidia is highly likely to enact a stock split.
The latest was in 2021, when it did a 4-for-1 split. The stock traded for around a pre-split price of $744 -- cheaper than it is today. Before that, Nvidia last split its stock in 2007, when it would have traded at a split-adjusted price of just over $50.
Put Nvidia on your Watchlist - the probability of stock split becomes higher as Nvidia's share price approaches $1000 (the stock split is very likely to occur in 2025). NVIDIA last announced a four-for-one stock split in May 2021. Shares were around $600 at that time. Currently, the stock is nearing the $1,000 mark.
A return to lower interest rates will help shares maintain their current mid-30s forward earnings multiple. Both these factors could be more than enough to send NVDA stock to prices well north of $1000 per share. With this in mind, those deciding to skip or cash out of NVDA stock could end up regretting the move.
Assuming Nvidia is still trading at the same forward P/E, its stock price could reach $3,360 by the end of 2030, or 328% above the current share price. That would put its market cap at over $8 trillion.
Does it matter to buy before or after a stock split? If you buy a stock before it splits, you'll pay more per share than what it'll cost after it splits. If you're looking to buy into a stock at a cheaper price, you may want to wait until after the stock split.
Splitting the stock brings the share price down to a more attractive level. The actual value of the company doesn't change but the lower stock price may affect the way the stock is perceived and this can entice new investors.
Not to forget, a company must invest some amount to conduct a stock split. Regulatory compliance, news issues, and other activities in a stock split will require funds. The company must also be ready to hire legal support as and when required during a stock split.
Investors can expect the stock to make them richer
Based on a top line of $300 billion after five years, a sales multiple of 20 points toward a market cap of a whopping $6 trillion. That would be way higher than Nvidia's current market cap of around $1.35 trillion.
Shareholders could see Nvidia's profits trickle down to them as dividends and share repurchases. The company already pays a dividend, though its yield is hilariously low at 0.03% because of how much shares have risen. Shareholders will be too giddy to laugh if management raises the dividend faster.
The stock holds a D Accumulation/Distribution Rating. That shows very little buying from institutional investors in recent months. Despite its many positives, Nvidia stock is not a buy right now. Because the stock is below the 50-day line, investors will need to wait until the stock forms a new base.
However, for Nvidia to get to $2,000, the company would have to continue to grow its revenue at the same pace as it has, which will likely not happen any time soon, given its slowing growth guidance.
(We) expect healthy growth for Nvidia's data centre revenue beyond 2024.” While still on the higher side, the falling P/E ratio coupled with the significant stock price increase is a strong indication of the company's ability to generate growth and the investor confidence in its future earnings potential.
We created three forecast scenarios for Nvidia's potential price, each with a different annual growth rate: 5% yearly growth, historical S&P 500 ROI (11.1%), and historical Nasdaq-100 ROI (15.2%). Based on these scenarios, the stock prices forecast for 2040 range between $1,694 and $8,191.
Nvidia will soar 21% to $1,000 as its new AI chip slams would-be rivals, Morgan Stanley says. It's among 10 stocks set to surge. Jensen Huang, cofounder and CEO of Nvidia, in March of 2024.
June 3 -- Shareholders voted to approve the split. July 19 -- Shareholders of record on June 21 received three additional shares of stock for every one share they held on the record date. July 20 -- Nvidia stock began trading at its split-adjusted price.
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