Stock-Split Watch: Is Nvidia Next?


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Most of the so-called Big Techs — the largest publicly traded technology companies — have split their common stock in recent years. In 2022, e-commerce titan Amazon and Google parent Alphabet each had stock splits. Nvidia (NASDAQ: NVDA), the leading producer of artificial intelligence (AI) chips, split its stock in 2021, and iPhone maker Apple did so the year before.

The stock of one of these companies — Nvidia — has run up tremendously recently. It has soared largely due to powerful demand for the company’s graphics processing units (GPUs) to accelerate the training of AI models and running of AI applications in data centers. Nvidia stock entered 2023 at $146.07 per share, and on April 19, 2024, it closed at $762.00. That’s a hefty gain of 422% in 16 months.

Moreover, Nvidia’s lofty stock price suggests the company could split its stock again soon.

Nvidia stock-split history

Nvidia held its initial public offering (IPO) in January 1999. The stock’s IPO price was $12 per share. Since then, Nvidia stock has split five times. The IPO price adjusted for stock splits is $0.25.

Date

Stock-Split Type

Share Price Prior to Stock-Split Announcement

July 20, 2021

4-for-1

$583.36 (May 20, 2021)

Sep 11, 2007

3-for-2

N/A

Apr 07, 2006

2-for-1

N/A

Sep 12, 2001

2-for-1

N/A

Jun 27, 2000

2-for-1

N/A

Data sources: Nvidia and Yahoo Finance. N/A= not explored in this article.

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.

Here’s a summary of the key events involved in Nvidia’s last stock split:

  • May 21, 2021 — The company announced its board of directors declared a 4-for-1 split of its common stock. As is standard practice, the split was contingent upon being approved by stockholders at the company’s annual meeting. Nvidia shares gained 6% in the week following this announcement.

  • 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.

Nvidia hasn’t yet announced the date of its 2024 annual meeting, but it should be sometime in June. In 2023, it was on June 22.

If Nvidia intends to split its stock this year, investors can expect it to release a statement a couple of weeks in advance of its 2024 annual meeting. This would likely be in the late May to early June time frame.

Will an Nvidia stock split matter?

A Nvidia stock split won’t change the underlying value of the company, nor will it alter an investor’s proportionate stake in Nvidia.

But stock splits can result in several benefits for investors. The first one has to do with accessibility, as a split should increase the size of the pool of individual investors who might buy the stock. An investor would now need to plunk down $762 to buy a single share of Nvidia. Some folks might only have $250 or $500 to invest. Others might be able to afford to buy one share, but don’t want to invest that much money in Nvidia, at least at one time.

There are some online brokerages that permit investors to buy (and sell) a fraction of one share. But not all of them do. And my guess is that most investors prefer owning a whole number of shares.

Existing investors might also benefit from an Nvidia stock split. Soon after a company announces it intends to split its stock, the stock will often rise. This is due to investors’ expectation that there will be greater demand for the stock when its accessibility increases. These post-announcement stock bumps, however, are not always sustained.

Lastly, an Nvidia stock split would give the company a much better chance at being included on the Dow Jones Industrial Average, the oldest U.S. stock index. This 30-large stock index is price-weighted, which means that extremely high-priced stocks have little chance of being included because they would have too much effect on the index price. A Dow index membership would mean that mutual funds and exchange-traded funds (ETFs) designed to track the Dow would have to buy shares of Nvidia. This increased demand would exert upward pressure on the stock price.

Split or not, Nvidia stock is a great way to invest in the AI boom

In short, a stock split has the potential to be a slight positive for Nvidia stock. Stock split or not, Nvidia stock remains a great way to invest in the AI boom. That said, investors who are concerned about Nvidia’s valuation being too high could buy a portfolio of chip stocks by buying an ETF. The two best-performing semiconductor ETFs over the short and longer terms are VanEck Semiconductor ETF and iShares Semiconductor ETF.

Should you invest $1,000 in Nvidia right now?

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Nvidia, and iShares Trust-iShares Semiconductor ETF. The Motley Fool has a disclosure policy.

Stock-Split Watch: Is Nvidia Next? was originally published by The Motley Fool



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