Why Nvidia’s Stock Split Could Bring Additional Market Gains

NVIDIA Corporation (NVDA) The stock topped $1,000, a record high, in a post-earnings rally. Last week, the company reported first-quarter fiscal 2025 results that beat analyst expectations for revenue and revenue, bolstering investor confidence in a boom in demand for AI-based chips. Moreover, the stock has surged nearly 120% in the past six months and more than 245% in the past year.

Meanwhile, the chipmaker announced a 10-for-1 stock split of common stock issued by NVIDIA, making stock ownership more accessible to employees and investors.

Let’s take a closer look at how NVIDIA’s stock split decision could attract more investors and boost future profits.

AI chip reader

NVDA’s capabilities in AI and semiconductor technology are truly amazing. Graphics processing units (GPUs) have become synonymous with cutting-edge AI applications, from powering self-driving cars, teaching and distributing LLMs to innovating medical diagnostics and e-commerce recommendation systems.

In a rapidly evolving technology landscape, NVIDIA continues to lead by driving innovation and redefining industry standards. The United States, led by Nvidia, dominates the generative AI technology market. The launch of ChatGPT in November 2022 played a pivotal role in fueling the ‘AI boom’.

NVDA Market share approximately 92% Data Center GPU Market for Generative AI Applications. The company’s chips have become popular with several tech giants due to their high performance and wide range of applications, including: Amazon (AMZN), Metaplatforms (META), Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL)and Tesla (TSLA).

Nvidia beat analyst estimates for its 2019 sales and earnings. First quarter of fiscal year 2025, driven by strong demand for AI chips. In the first quarter ended April 28, 2024, NVIDIA’s revenue increased 262% year-over-year to $26.04 billion. That beat analysts’ sales expectations of $24.59 billion. The company reported record revenue from its data center segment of $22.6 billion, up 427% year-over-year.

“Our data center growth is driven by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer Internet companies, enterprises, sovereign AI, automotive and healthcare customers, creating multibillion-dollar vertical markets,” said Jensen Huang, founder and CEO of NVDA.

“We are ready for the next wave of growth. The Blackwell platform is in full production and forms the foundation for generative AI at trillion-parameter scale,” Huang added.

NVDA’s non-GAAP gross profit increased 328.2% year-over-year to $20.56 billion. The company’s non-GAAP operating income was $18.06 billion, an increase of 491.7% year-over-year. Non-GAAP net income increased 461.7% year over year to $15.24 billion.

The chipmaker also reported non-GAAP EPS of $6.12, up 461.5% year-over-year compared to the consensus estimate of $5.58.

Nvidia’s Stock Split: A Strategic Move

In conjunction with outstanding fiscal 2025 first quarter results, NVDA announced a 1:10 split of its outstanding common stock. Nvidia’s decision to split its stock is consistent with a broader trend among tech giants to make the stock more attractive to a broader range of investors, especially retail investors. The chipmaker aims to democratize ownership and attract a broader investor base by breaking down the barriers to high share prices.

As more individual investors gain access to Nvidia’s stock following the stock split, trading activity will pick up and demand will increase, potentially putting upward pressure on the stock price. This strategic move reflects NVIDIA management’s confidence in its future growth trajectory and highlights NVIDIA’s commitment to the inclusiveness of its investment environment.

Bank of America analysts, led by Jared Woodward, chairman of the bank’s research and investment committee, explained the stock split:Another large technology company pursuing shareholder-friendly policies“He left a note to the customer.

NVIDIA becomes the fourth Magnificent Seven tech giant to announce a stock split since 2022, following efforts by Google, Amazon and Tesla to make their shares more accessible, according to Woodward and his team.

In recent years, stock prices of several big tech companies have surged past $500, making it difficult for individual investors to purchase their shares. As a result, these companies have been looking for ways to simplify the buying process for non-professional investors. BofA added that “big tech is doing it in bite-sized pieces” to lure retail investors. This could mean more market returns.

Historical data indicates a bullish outlook for stock splits.

Examining historical data on stock splits generally reveals a positive picture. Although immediate profits are not guaranteed after the spin-off, companies that: Apple Inc. (AAPL) Google saw its stock price rise significantly after the split. AAPL’s 4:1 stock splitwhich came into effect in August 2020, primarily affected investor sentiment and trading dynamics.

After the split, Apple’s stock price continued to rise, driven by the strong performance of its core businesses, including iPhone sales, services revenue, and wearables. From the second half of 2020 to 2021, stock prices showed significant gains and reached all-time highs.

Given NVIDIA’s strong fundamentals and leadership in AI and semiconductor technology, there is reason to believe that its recent stock split could have a similar outcome.

BofA’s sell-side analysts have continued to be bullish on Nvidia stock, and following its first-quarter earnings release, they raised their 12-month price target for the chip giant from $1,100 to $1,320. If the forecast is accurate, Nvidia stock could surge another 26%, and a stock split could support such a bullish move, according to Bank of America’s historical reading.

“Splits have boosted returns every decade, including in the early 2000s when the S&P 500 was struggling,” Woodard and his team said. Historically, stocks have a total return of 25% over the 12 months following a stock split, compared to a 12% total return for the S&P 500, according to research by BofA.

The bank also emphasized that stock splits often spark strength even in underperforming stocks. For example, both AMD (Advanced Micro Device) and Valero Energy Corporation (VLO) experienced a significant share price increase after announcing the stock split, despite previous poor performance. According to the analyst, “splits appear to bring upside potential to the market, as gains are more common and larger than losses on average.”

However, it is important to note the standard caveat provided by the Securities and Exchange Commission (SEC): “Past performance is not indicative of future results.” Accordingly, Bank of America emphasized that “outstanding performance is not guaranteed” following a stock split. The company still had negative returns 30% of the time following the spin-off, with an average decline of 22% over the subsequent 12 months.

“A spin-off could signal strong momentum, but the company may struggle in a difficult macro environment,” the analysts noted. Companies that have experienced difficulties in the 12 months following the 2022 stock split due to the high interest rate environment, such as Amazon, Google, and Tesla, were selected.

conclusion

NVDA plays an important role as a global leader in AI and semiconductor technology, and GPUs are driving innovation in a variety of industries including technology, automotive, healthcare, and e-commerce. Nvidia’s first quarter fiscal 2025 results suggest demand for AI chips remains robust.

Statista predicts that the global generative AI market will reach $36.06 billion by 2024. The United States is expected to maintain the top spot in AI market share this year as well. Total $11.66 billion. Additionally, the market is expected to grow at a CAGR of 46.5%, reaching a market size of $356.1 billion by 2030. The bright outlook for the AI ​​market should bode well for NVDA.

The company recently made headlines by announcing a 10-for-1 stock split. Stock splits typically do not change the fundamental value of a company, but they do make the stock more accessible and attractive to individual investors. Therefore, the recent stock split could significantly increase retail participation, boosting trading activity and potentially putting upward pressure on Nvidia’s stock price.

Historically, stock splits have generally had a positive effect on stock performance. Companies like AAPL, GOOGL, and AMD have experienced significant price increases following stock splits, which have increased their access to retail investors, leading to higher demand and liquidity.

However, it is important to acknowledge that past performance is not indicative of future results. Stock splits can indicate strong price momentum, but they do not guarantee outstanding performance.

In conclusion, Nvidia’s stock split is likely to attract more retail investors, potentially fueling increased trading activity and higher stock prices. Combined with the company’s strong position in the AI ​​and semiconductor markets, a stock split could fuel additional growth in line with the historical trend of positive post-split performance.