Nvidia’s prices continue to rise. Heading for a stock split?

nvidia (NVDA -2.00%) Stocks seem unstoppable. The company’s stock price has risen nearly 300% in the past 12 months amid the company’s dominance in artificial intelligence (AI)-enabled chips and relentless demand for its technology.

As the stock approaches $1,000 per share, investors may be wondering if a stock split is imminent. Despite the fact that such a move would not have a direct impact on Nvidia’s valuation, investors should expect it soon. Here’s why:

Stock split with Nvidia

The history of Nvidia stock is perhaps the most compelling reason to expect a near-term split. The company has split its stock five times since 2000, one of which occurred after AI and data centers reignited investor interest in GPUs.

The previous split occurred on July 19, 2021, when Nvidia conducted a 4:1 stock split. Interestingly, today’s pre-split price closed at around $744 per share, which is lower than the current price.

Still, investors should remember that these gains have come quickly, as Nvidia stock is up about 85% this year and nearly 30% in the past month alone. This suggests that the need for a spin-off may catch the company’s board off guard.

Big questions surrounding the split

Moreover, perhaps the most important question regarding a spin-off is where the company will set its spin-off ratio. The most recent 4-for-1 split was the largest in the company’s history, and the company has approved three 2-for-1 splits and one 3-for-2 split in the 2000s.

However, as previously mentioned, recent growth has probably exceeded expectations. Future growth may not match the 126% revenue growth in fiscal 2024 (which ends Jan. 31), but analysts are forecasting revenue growth of 81% in fiscal 2025 and 22% in the next fiscal year, which could be expected in the near future. This indicates that massive profit growth will continue.

This may mean that the stock price has not yet risen. Conversely, slowing growth could soon dampen enthusiasm for the stock, and the company’s board will likely have to take into account the significant decline in its stock price over the past few years. Therefore, companies should prepare for potential price fluctuations when determining their split ratio.

NVDA data from YCharts

Another possible consideration

Investors may also want to consider another possible factor. That is, it is included as one of 30 stocks. Dow Jones Industrial Average.

S&P Dow Jones Indices is operated by: S&P GlobalI have absolutely no intention of putting Nvidia in the Dow 30. Additionally, the index already includes two semiconductor stocks. apologize and intel.

However, Intel has struggled in recent years, making its elimination more likely. Additionally, AI’s impact on the economy could lead to the inclusion of more technology stocks in the index, and Nvidia’s $2.2 trillion market capitalization makes it a likely pick.

Additionally, the Dow 30 is a price-weighted index. Because nominal stock prices determine a stock’s weight in the Dow, companies often initiate stock splits to reduce their influence on the index. If Nvidia seeks inclusion in the Dow 30, it could change its split ratio to increase its chances of inclusion.

Understanding a Potential Stock Split

Given the company’s history of stock splits, investors should expect such a move sooner rather than later. Additionally, since the previous split occurred less than three years ago and at a low price, the split ratio is likely the most important issue associated with such a move.

In fact, Nvidia’s board of directors must consider the stock’s price history when determining ratios, both in a positive and negative sense. Additionally, assuming Nvidia wants to become a Dow 30 stock, it will have to become more sensitive to its nominal share price.

Ultimately, the stock split changes nothing for Nvidia on the surface. However, given the company’s history, shareholders should expect a split and possibly increased interest in the stock from unexpected parties.