Nvidia stock split: What’s next for the stock and other AI plays

Jun 9, 2024

Now entering the stock split zone.

Nvidia (NVDA) is joining its mega-cap tech peers, becoming the fourth Magnificent 7 stock to split since 2022.

The chip giant’s 10-for-1 stock split, which will start trading on Monday, follows significant price growth, with shares up 212% in the past year. That massive rally pushed Nvidia into the $3 trillion club alongside Apple (AAPL) and Microsoft (MSFT), becoming just the third U.S. company ever to reach that milestone.

“A stock split is a vote of confidence from management that the stock will hold its value, as the stock [price] typically increases,” S&P Dow Jones Indices senior analyst Howard Silverblatt says.

Winthrop Capital chief investment officer Adam Coons expects the split to boost retail investor interest, but cautions that an influx of retail traders could trigger volatility for the stock.

“They can be a little bit more quick and emotional with their buying and selling decisions, so that can lead to heightened volatility as you start to dilute the institutional buyers,” Coons told Yahoo Finance.

Evercore ISI’s Julian Emanuel sees increased volatility as an opportunity to buy Nvidia — a stock he views as a “generational opportunity” and this era’s “marquee” technology stock.

“While high profile splits have often fueled stock volatility — speculative buying and profit taking around the event — Thinning the trees within the forest post-split catalyzes the Buying Opportunity for the patient investor,” Emanuel wrote in a client note.

Historically, stock splits are typically bullish for the companies that enact them, with average returns one year later of 25% versus about 12% for the broad market, according to analysis from Bank of America.

Nvidia’s skyrocketing gains have driven the broader market to record highs. Its rally accounted for about a third of the S&P 500’s return since the start of the year, and more than a quarter of the S&P 500’s return in the month of May, according to Silverblatt.

Wall Street has gotten even more bullish on the stock since its earnings report on May 22. Last week, Bank of America’s Vivek Arya raised his price target to a Street high of $1,500.

“We are at the start of what I think would be a decade-long conversion to accelerated computing … We think that the spending could be anywhere between $250 to $500 billion a year, and Nvidia is leading the charge,” Arya told Yahoo Finance.

Nvidia’s stock split not only signals management’s confidence in the chip giant, but enthusiasm and optimism about the broader AI industry’s growth potential.

As Lam Research (LRCX) CFO Doug Bettinger explained to me at Bank of America’s Global Technology conference earlier this week, we’re still “very, very early” in the AI investment cycle.

That next round of growth — or the second wave of AI — is expected to take hold as companies begin to integrate AI into their planning and enterprise spending.

“More and more companies are adopting hybrid-cloud architectures, and with a focus on building modern applications, and starting their journey into enterprise AI,” Nutanix (NTNX) CEO Rajiv Ramaswami told me.

For investors looking to add to their portfolios, Arya likes Broadcom (AVGO), Marvell Technology (MRVL), Micron (MU), and Arm (ARM) as winners of AI’s continued wave. In a note to clients last month, Arya wrote that he sees increased requirements in computing, networking and memory as a “multi-year growth driver” for the group.

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email seanasmith@yahooinc.com.

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