Nvidia Corp's meteoric rise in stock price has added more than $1 trillion in value this year alone, well above the level at the time of the last stock split. Some see the AI giant as well-positioned to do so again.
The company last announced a 4-for-1 stock split in May 2021, when the stock was trading at about $600 per share. The stock is now nearing the $1,000 mark, further outpacing last year's 240% surge. While bulls argue that the company's valuation is relatively cheap given its future earnings growth, some potential investors may be wary of the price.
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“I expect there will be a stock split, probably in the next year or so. That could bring some of the smaller retail investors into the stock that they think are out of reach right now.” said Ken Mahoney, the company's president and CEO. Mahoney Asset Management.
According to a press release, NVIDIA's reason for splitting in 2021 was to “make it easier for investors and employees to own stock.” By July 19 of the same year (the day before trading began after adjusting for the split), the stock had risen to approximately $750 per share. Although the stock price fell in 2022, the stock price has since significantly exceeded that level.
A stock split is generally an ostensible measure taken to attract smaller investors. This move lowers the stock price by redistributing the amount of equity into more shares, but does not change anything about the underlying fundamentals or valuation.
“I've always been ambivalent,” said Mike Sansoterra, chief investment officer at Sylvanto Capital Management LLC, adding that stock splits don't really matter because they don't change the company's value.
“But on the other hand, retail investors psychologically want to buy something at $30 instead of $300,” he says. “It's not cheap, but they're telling themselves it's cheaper.”
To be sure, NVIDIA hasn't given any indication that it will split its stock anytime soon, and its share price is still trending upwards, so it doesn't seem to be scaring away all retail investors. The company is one of the most traded stocks in the retail industry, along with Tesla Inc., Advanced Micro Devices Inc. and Super Micro Computer Inc., according to data from Vanda Research.
And investors who aren't ready to jump past Thursday's closing price of about $927 may still buy fractional Nvidia shares or reduce their holdings.
Moreover, last year, amid a rally in market-leading tech stocks, no Nasdaq 100 companies split their stock. That's a reversal from just a few years ago, when the pandemic sent technology stocks soaring and spurred the breakup of some major companies.
Apple and Tesla split their shares in 2020, making this the second move for the EV maker in two years. Amazon.com and Alphabet have both split their stocks in 2022, but Microsoft hasn't split its stock since 2003, when it traded at about $50. It is currently trading at over $400.
If Nvidia can continue its upward trajectory and consistent growth, a stock split “would make sense,” Mahoney said.
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A positive outlook for earnings and cash flow in 2024 is one of the factors pushing International Business Machines Inc. toward all-time highs set more than a decade ago. In recent years, the company has focused on streamlining its operations around software and services and selling off other businesses.
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