Nvidia (NVDA) joins its mega-cap tech peers to become the fourth Magnificent 7 stock to split since 2022.
The chip giant’s 10-for-1 stock split, which kicks off on Monday, follows significant price growth, with shares up 212% in the past year. That massive rally pushed Nvidia into the $3 trillion club, becoming just the third U.S. company ever to reach that milestone.
“A stock split is a vote of confidence by management that the stock will retain its value, just like the stock [price] tends to increase,” said S&P Dow Jones Indices senior analyst Howard Silverblatt.
Winthrop Capital Chief Investment Officer Adam Coons expects the split to increase interest from retail investors, but warns that an influx of retail traders could lead to volatility for the shares.
“They can be a little quicker and more emotional with their buying and selling decisions, so that could lead to increased volatility if you start to dilute the institutional buyers,” Coons told Yahoo Finance.
Evercore ISI’s Julian Emanuel sees the increased volatility as an opportunity to buy Nvidia – a stock he views as a “generational opportunity” and the “big” tech stocks of this era.
“While high-profile splits have often fueled stock volatility – speculative buying and profit-taking surrounding the event – the post-split thinning of the trees catalyzes the buying opportunity for the patient investor,” Emanuel wrote.
Historically, stock splits tend to be bullish for the companies that implement them, with average returns a year later of 25% versus about 12% for the broader market, according to a Bank of America analysis.
Nvidia’s skyrocketing profits have driven the broader market to record highs. According to Silverblatt, the rally accounted for about a third of the S&P 500’s returns since the beginning of the year, and more than a quarter of the S&P 500’s returns in May.
Wall Street has become even more bullish on the stock since the May 22 earnings report. Last week, Bank of America’s Vivek Arya raised his price target to a Street high of $1,500.
“We’re at the beginning of what I think would be a decade-long conversion to accelerated computing… We think spending could be somewhere between $250 and $500 billion per year, and Nvidia is leading the charge,” Arya told Yahoo Finance.
Nvidia’s stock split signals not only management’s confidence in the chip giant, but also enthusiasm and optimism about the growth potential of the broader AI industry.
As Lam Research (LRCX) CFO Doug Bettinger explained to me at Bank of America’s Global Technology conference last week, we are still “very, very early” in the AI investment cycle.
That next round of growth – or the second wave of AI – is expected to occur as companies begin to integrate AI into their planning and business spending.
“More companies are adopting hybrid cloud architectures, with a focus on building modern applications, and beginning their journey to enterprise AI,” said Rajiv Ramaswami, CEO of Nutanix (NTNX).
For investors looking to expand their portfolios, Arya sees Broadcom (AVGO), Marvell Technology (MRVL), Micron (MU) and Arm (ARM) as winners from the ongoing AI wave. In a letter to customers last month, Arya wrote that he sees increased demands in computing, networking and memory as a “multi-year growth engine” for the group.
Seana Smith is an anchor at Yahoo Finance. Follow Smit on Twitter @SeanaNSsmith. Tips about deals, mergers, activist situations or something else? Email seanasmith@yahooinc.com.
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