Investors have been snapping up this fast-growing artificial intelligence (AI) stock in 2023. Will there be a stock split in 2024?

It would be difficult not to mention nvidia (NVDA) When summarizing the stock market in 2023. The rise of artificial intelligence (AI) and Nvidia’s triple-digit surge will undoubtedly be among the major headlines of 2023.

By the end of December, Nvidia had soared to around $500 per share, a steep price for many investors who want to buy the entire stock.

Will the overall stock price fall due to a stock split in 2024? Will this affect whether investors should continue to buy the stock?

Here’s what you need to know.

Why Nvidia Stock Could Split

Predicting a stock split isn’t rocket science, and some clues point to it happening soon at Nvidia. The company has a history of stock splits. This is when a company increases or divides its share count without changing its overall market capitalization. Therefore, as the number of shares increases, the value per share falls.

Nvidia’s most recent split occurred in 2021. Before the split, the stock was trading at $744. Nvidia isn’t that high yet, but it’s getting close to $500.

Prior to 2021, Nvidia had split its stock four more times between 2000 and 2007. Over those seven years, the stock rose 334%. I think management likes to keep the stock price palatable to most investors.

The rapid growth of AI in 2023 has established a growth narrative that can be expanded into the future, with Nvidia at the center. That said, Nvidia’s fundamentals seem destined to keep the stock higher for the next few years, which makes us think an Nvidia stock split is a problem. when And then no If the.

But here’s the secret to stock splits.

Investors need to understand what stock splits do and don’t do. Splits lower the trading price of a stock. This makes it cheaper to own the business, but the spin-off does not fundamentally affect the value of the stock. Splitting a stock into more pieces (shares) creates a lower stock price.

For example, say you want to eat pie. You go to the store and see $40 worth of pie being sold in two half halves for $20 each. You don’t want to pay $20 for a pie, so you ask the store to cut the pie in half into quarters that sell for $10 each. In this case, you pay $10 for the pie, but you get a smaller slice.

A stock split works the same way. The company’s value remains the same, but investors are paying a smaller stock price for the smaller portion of the business the stock represents. This isn’t necessarily a bad thing, but remember that stock splits don’t change the underlying value, only the stock price. Investors who cannot afford a full stock can also check out partial stock purchases.

Should Investors Buy Nvidia Beyond 2024?

Investors should buy Nvidia if they like the direction of the business, not because of what management does with the stock count. The good news is that Nvidia looks like a great long-term buy. It is the overwhelming market leader in AI chips deployed in large data centers to handle intensive computing workloads.

The company’s most recent quarterly revenue was up 200% year-over-year. Analysts are predicting long-term earnings growth of 42% on average per year. Despite a massive rally in 2023, the stock trades for a forward P/E of just 40. As a result, a price/growth (PEG) ratio of just 1 signals that the stock is cheap, assuming long-term growth estimates. materialize

NVDA PE Ratio (Forward) Data from YCharts

There are no stocks without risk. Competition for Nvidia will certainly come, and it’s not clear that it will achieve its growth estimates. However, if investors intend to hold for the long term, they should be compensated.