Nvidia Corporation, an American technology company based in Santa Clara, California, is a pioneer in accelerated computing and a major manufacturer of high-end graphics processing units (GPUs). For the first quarter that ended April 28, 2024, the company reported revenue of $26.0 billion, which represents an 18% increase from the previous quarter and a remarkable 262% increase from a year ago. Additionally, the company announced a 10-for-1 stock split, scheduled to take effect on July 7, 2024.
Overview
Nvidia Corporation, an American technology company based in Santa Clara, California, is a pioneer in accelerated computing and a major manufacturer of high-end graphics processing units (GPUs). For the first quarter that ended April 28, 2024, the company reported revenue of $26.0 billion, which represents an 18% increase from the previous quarter and a remarkable 262% increase from a year ago. Additionally, the company announced a 10-for-1 stock split, scheduled to take effect on July 7, 2024.
The forward split will increase the number of outstanding shares from approximately 2,468,000,000 to 24,680,000,000. At the same time, Nvidia's market capitalization and the value of each shareholder's stake will remain the same. The recent announcement of Nvidia's decision to proceed with a 10:1 stock split sparked considerable attention from investors and analysts.
Who is Nvidia?
Four corporations worldwide have reached an impressive milestone by attaining a market value exceeding $2 trillion. These corporations are Microsoft, Apple, Alphabet (the parent company of Google), and Nvidia, a leading manufacturer of computer chips. Nvidia, headquartered in Santa Clara, California, saw an exceptional increase in its stock market worth, doubling from $1 trillion to $2 trillion in just eight months. This rapid expansion was fueled by the surging demand for its cutting-edge technology, including hardware and software crucial for driving today's artificial intelligence capabilities.
What Is A Stock Split?
A stock split is a corporate action in which a company's board of directors gives existing shareholders more shares while simultaneously reducing the value of each share without decreasing the value of their holdings. This action increases the total number of outstanding shares and lowers the value of each share. Despite the increase in shares, the company's total market capitalization and the shareholder's stake stay the same.
For example, if you own one share of a company's stock and the company conducts a 10-for-1 forward stock split, you would receive an additional nine shares, but the value of each share would be reduced to one-tenth of the original value. After the split, the total value of your ten shares would be the same as the original value of your single share.
Why Stock Split?
Companies engage in forward stock splits for the following reasons:
Liquidity and Affordability
Companies usually conduct stock splits to facilitate investors' buying and selling of shares, hence increasing the company's liquidity. Stock splits involve dividing a company's shares into more, resulting in a lower share price and more available shares. For current shareholders, this means receiving additional shares for each share they already own.
For example, if you own a stock valued at $500 with a 2:1 forward split, you will have two shares worth $250 each.
Nvidia's 10-for-1 stock split means that current shareholders will get ten shares for each current share. When a company divides each existing share into ten new shares, the value of each share decreases to one-tenth of its original value. Nonetheless, the total market value of the company stays the same.
In short, retail investors interested in purchasing Nvidia stock will find it much more affordable.
Positive Market Perception for Sustained Growth
A stock split can indicate a company's confidence in its future growth potential. This move can positively impact investors and analysts, signaling the company's anticipation of sustained growth and expansion.
Companies commonly carry forward stock splits when they are most confident about sustained growth and profitability.
Broaden Investor Base
A stock split involves dividing each existing share into multiple shares, effectively reducing the price per share. This strategy can make the shares more appealing to smaller investors whom a high stock price may have put off. As a result, the company's investor base may expand, potentially leading to increased interest and investment.
Match Industry Peers
When a company's stock price increases significantly compared to its industry peers, it may choose to split its stocks to bring the price more in line with that of its direct competitors.
Psychological Factors
Investors often view lower-priced stocks as having more significant growth potential than higher-priced stocks. When a stock undergoes a split, it can take advantage of this psychological factor and generate increased investor interest.
Potential Impact
Nvidia's decision to implement a stock split follows the substantial growth of the company's share price, which almost tripled last year alone. On May 29, at the time of writing, Nvidia was being traded at around $1150 per share, boasting a market capitalization of $2,838,200,000,000, establishing it as one of the most reputable companies worldwide. Of course, the significant surge in its share price reflects the sustained company's growth, which may be attributed to the high demand for its GPUs in gaming, artificial intelligence, and data center applications.
The upcoming 10:1 stock split is expected to have the following potential effects:
- Increase the number of outstanding shares to 24,680,000,000
- Reduce the share price to around $115, making it more affordable for retail investors
- Increase trading volume and liquidity
- Increase price volatility as more investors trade the stock
Many experts and investors alike believe that Nvidia's prospects are favorable due to its solid standing in important expanding sectors and its history of progress and innovation.
Nvidia Upcoming Stock Split
Nvidia Corporation, a leading technology company, recently announced its plan to split its stock 10-for-1. This means that every share held by a shareholder will receive ten additional shares. This move has generated much interest among investors and analysts alike. In the following sections, we will explore how Nvidia's stock split will impact the company and its shareholders.
Reasons for the 10:1 Stock Split
The potential impact of Nvidia's stock split is:
- Onboarding more retail investors by decreasing the stock price and thus making it more attractive and affordable.
- Expanding the company's investor base leads to increased interest and investment.
- The liquidity of Nvidia's shares will increase as more investors trade the stock.
- Attract institutional investors and strengthen its visibility in the market.
Market Response
Since the announcement of the Nvidia 10:1 stock split on May 22, the market has responded positively, increasing demand. The stock price surged around 20% in just three trading days.
The positive market reaction was because the company's fundamental value remained unchanged despite the split. NVIDIA's financials and growth opportunities stayed the same, and the split did not impact the company's revenue.
Impact On Shareholder Value
When a company undergoes a stock split, it can potentially lead to a higher stock price and generate more market interest as it becomes accessible to a broader range of investors. Nonetheless, a company's long-term success primarily relies on its financial stability and growth prospects. After Apple's 4-for-1 stock split in 2020, there was an apparent rise in its stock price, indicating investors' confidence. This growth in shareholder value was supported by Apple's ongoing innovation and expansion into new markets. Similarly, the share price soared after Tesla's 5-for-1 stock split in 2020, attracting more retail investors due to the more affordable stock price. While the division of stocks can increase ownership and attractiveness to the market, in the long run, a company's value is determined by its overall strategy, innovation, and performance.
Historical Stock Splits
Based on historical evidence, more than half of the companies that choose to split their shares tend to outperform their benchmarks. This presents a positive trend and an opportunity for traders to enhance their trading strategies. In essence, the average returns from split stocks surpass the annual performance of the S&P 500.
After Apple's 4-for-1 stock split, the company's share price experienced a 19% return over the following year. In 2014, a 7-for-1 split resulted in a 36% return, and a 2-for-1 forward split in 2005 led to a 53% return.
Similarly, Google's 20:1 stock split on July 18, 2022, caused the share price to decrease from $2236 to $112 for adjustment purposes as intended. A year later, the share price rebounded to $130, resulting in a 16% return. Additionally, Tesla observed a 74% surge in its share price one year after the 5:1 stock split in August 2020.
Nvidia Technical Analysis
Nvidia has followed an uptrend since October 2022, forming successively higher peaks and troughs on the price chart, reflecting the company's growth and investors' confidence. Recently, on May 19, Nvidia's share price formed a swing on the chart, marked by the peak at 973.75 and the corresponding trough at 756.10, paving the way for higher stock prices. Both the 50-period Exponential Moving Average (EMA) and the Momentum oscillator support the bullish outlook. Specifically, prices are traded above the EMA while the Momentum oscillator registers values above the 100 baseline, indicating the buyers' pressure.
Nvidia Upside Targets
Should the Bulls maintain control of the market, traders may consider the following price objectives:
1108.26: The first potential upside target is 1108.26, representing the 161.8% Fibonacci extension drawn from the peak at 973.75 down to the trough at 756.10.
1240.94: The second price target is estimated using the pivot point technical tool and the standard methodology for the weekly timeframe.
1325.91: The third price objective is 1325.91, corresponding to the 261.8% Fibonacci extension of the recently formed upside swing.
1678.07: An additional potential target is computed at 1678.07 using the 423.6% Fibonacci extension on the recent swing.
Conclusion
Over the last five years, Nvidia investors have experienced an incredible surge in stock price, which has increased by 25 times. The Santa Clara-based company has been widely recognized for producing cutting-edge graphics processing units (GPUs) for the gaming industry and hardware for the rapidly expanding field of AI.
Nvidia's decision to split stocks 10-for-1 can significantly impact how the market and investors perceive the company's share. When a company announces a split that will make shares more affordable, it often generates excitement and anticipation among investors. This psychological effect can lead to increased demand and, in the short term, higher share prices, making the stock more appealing. The company appears more accessible to a broader range of investors, stimulating their interest. This can improve the company's standing and reputation in the marketplace.