Semiconductor firm Nvidia NVDA announced a 10-for-1 stock split along with its blowout first-quarter earnings results on Wednesday. The stock split means investors will receive nine additional shares for each one they already own.
“The split is reasonable since the stock price has appreciated so significantly,” says Morningstar technology equity strategist Brian Colello.
Nvidia shares are up more than 90% this year and more than 200% over the past 12 months, as the company has boomed thanks to the key role its semiconductor chips play in training and running artificial intelligence models. It now trades at over $1,000 per share, while it went for $495 at the end of 2023. The stock was changing hands near $305 per share in May 2023, just before the firm reported blowout earnings that kicked off the AI stock frenzy.
The firm’s last stock split was in July 2021, when it issued three new shares for every one outstanding (a four-for-one split).
The Date for Nvidia’s Stock Split
According to the company’s press release, the split is slated to occur after the stock market’s close on June 7. Shares will trade on a post-split basis starting June 10.
Nvidia Stock Price
Colello raised his fair value estimate for Nvidia stock from $910 to $1,050 following the company’s first-quarter results, which saw revenue of $26 billion—an 18% increase over the previous quarter and a 262% increase over the year-ago quarter.
What Nvidia’s Stock Split Means
While the split will increase the number of outstanding shares in circulation, it will not change the company’s overall value or affect Morningstar’s view of its stock. “Splitting the stock shouldn’t create economic value in theory, but it will make the company more accessible to smaller investors,” Colello explains. While $500 isn’t enough to buy a single share of Nvidia today, he explains, it will be enough to buy several shares after the split.
After the split, Nvidia’s fair value estimate will be adjusted to $105. The firm’s wide economic moat rating will be unaffected, as will its 3-star rating (meaning the stock is considered fairly valued) and very high uncertainty rating.
Nvidia’s AI Boom
The firm’s first-quarter earnings show it “remains the clear winner in the race to build out generative artificial intelligence capabilities,” Colello writes. “We’re encouraged by management’s commentary that demand for its upcoming Blackwell products should exceed supply into calendar 2025, and we see no signs of AI demand slowing either.”
Colello is looking ahead to strong revenue growth from data centers over the next several quarters, and he expects additional growth from a higher installed base of AI equipment. He is anticipating revenue of $29.7 billion in the next quarter—slightly more than Nvidia’s estimate.
Colello doesn’t believe the rush of companies buying Nvidia’s chips will stall—for now, at least. He says the firm’s production is still well-matched to customer demand, though the risk bears watching. “Given Nvidia’s astronomical growth, we continue to assess the risk of companies buying too many AI GPUs too soon, leading to an air pocket and excess inventory at some point in the future. We see no such signs today,” he writes.
Why Do Companies Split Their Stock?
When a company splits its stock, each share gets divided into multiple new shares. While this increases the number of outstanding shares, it does not change the company’s overall value (its market capitalization). Firms tend to do this when their share price has risen dramatically to an amount that might make it difficult for individual investors to purchase them. Having a larger number of cheaper shares to attract more buyers can help improve liquidity, and lower prices can also have the psychological impact of making shares look more attractive to investors, even though the company’s underlying value hasn’t changed.
Other Recent Stock Splits
Nvidia isn’t the only major company to split its shares in recent years. Retail giant Walmart WMT enacted a 3-for-1 split in February, while Alphabet GOOGL/GOOG, Tesla TSLA, and Amazon AMZN split shares in 2022.
The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.
So Nvidia said in May that it would carry out a 10-for-1 “stock split,” its second split in three years, to reduce the price of the shares and make them more accessible to retail investors and employees. Since Nvidia's 4-for-1 split in May 2021, the stock has surged more than 500%.
Nvidia (NASDAQ: NVDA) is splitting its stock 10-for-1 next week, which means investors will own more shares of the company. But does it matter? In this video, Travis Hoium covers why companies split their stock and how this could impact shares long term. *Stock prices used were end-of-day prices of May 30, 2024.
The short answer is it doesn't matter, and here's why. As mentioned earlier, a stock split doesn't change the value of the company or the value of an investor's holding. If you buy one share today or 10 shares after the split, you'll be investing the same amount of cash.
Do stock splits benefit investors? – It's nice to own more shares after a split, since the reduced per-share price might mean there's room for greater potential price growth. But investors shouldn't buy a stock simply because they hope it'll rise in price after a split.
A stock split doesn't change the value of your investment. If you own the stock of a company that executes a stock split, the details of your position change, but the total value of your position does not.
While stock splits don't affect a company's fundamentals, they can positively influence investor perception, leading to increased demand and higher liquidity within shares.
While a split, in theory, should have no effect on a stock's price, it often results in renewed investor interest, which can have a positive effect on the stock price. While this effect may wane over time, stock splits by blue-chip companies are a bullish signal for investors.
Nvidia has a consensus rating of Strong Buy which is based on 37 buy ratings, 3 hold ratings and 0 sell ratings. The average price target for Nvidia is $1,197.64. This is based on 40 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
Nvidia (NASDAQ: NVDA) is a prime example of what a successful buy-and-hold investment can deliver over the long run. An investor who put $10,000 into Nvidia stock a decade ago and held on would be sitting on a position worth more than $1.8 million right now and more than $1.9 million with dividends reinvested.
Nvidia ($NVDA) stock will undergo its sixth stock split with shares trading at one-tenth the price starting June 10, 2024. Before the Q1 2024 earnings call on May 22, 2024 when the split was announced, NVDA closed at $949.50.
Although the number of outstanding shares increases and the price per share decreases, the market capitalization (and the value of the company) does not change. As a result, stock splits help make shares more affordable to smaller investors and provide greater marketability and liquidity in the market.
Is a stock split good or bad? Well, a stock split is neither inherently good nor bad. It increases the number of shares while decreasing the price per share proportionally, aiming to make the stock more accessible.
A stock split doesn't materially change the value of an investment, rather it means that a company is dividing its shares in such a way that each individual share is cheaper. For example, Nvidia closed Tuesday at $1,139.01. With a 10-for-1 split based on that price, each share would be worth $113.90.
If the number of shares increases, the share price will decrease by a proportional amount. If a stock traded at $100 previously, it will trade at $50 after a 2-for-1 split. Yes, you own more shares, but they're each worth less. It's basically a draw, and the value of your investment won't change.
Technically, yes. You can lose all your money in stocks or any other investment that has some degree of risk. However, this is rare. Even if you only hold one stock that does very poorly, you'll usually retain some residual value.
In a stock split the number of outstanding shares increases and the price per share decreases proportionally, while the market capitalization and the value of the company do not change.
Nvidia's 10-for-1 stock split means shareholders will get 10 shares for each one they held before the split. The split will affect shareholders of Nvidia common stock as of market close on Thursday, June 6, with investors receiving nine additional shares after market close on Friday, June 7.
A conventional stock split is a fairly clean increase of position size and a strike price adjustment and doesn't affect the value of an options position. It only means that the investor will be holding a greater number of contracts at a lower price.
Introduction: My name is Arielle Torp, I am a comfortable, kind, zealous, lovely, jolly, colorful, adventurous person who loves writing and wants to share my knowledge and understanding with you.
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