Semiconductor firm Nvidia (NVDA) announced a 10-for-1 stock split alongside its impressive first-quarter earnings results on Wednesday. This stock split will give investors nine additional shares for each one they currently own.
“The split is reasonable since the stock price has appreciated so significantly,” says Brian Colello, technology equity strategist at Morningstar.
Nvidia shares have surged over 90% this year and more than 200% over the past 12 months, thanks to the crucial role its semiconductor chips play in training and running artificial intelligence models. The stock, which traded at $495 at the end of 2023, now exceeds $1,000 per share. In May 2023, Nvidia shares were around $305 each, just before the company reported stellar earnings that ignited the AI stock frenzy.
Nvidia’s last stock split occurred in July 2021, with a four-for-one split (issuing three new shares for each existing one).
The Date for Nvidia’s Stock Split
According to Nvidia’s press release, the split is scheduled for after the stock market closes on June 7, with shares trading on a post-split basis starting June 10.
Following Nvidia’s first-quarter results, which saw a revenue increase of 18% quarter-over-quarter and 262% year-over-year, Colello raised his fair value estimate for Nvidia stock from $910 to $1,050.
What Nvidia’s Stock Split Means
While the split will increase the number of outstanding shares, it won’t change Nvidia’s overall value or affect Morningstar’s assessment of its stock. “Splitting the stock shouldn’t create economic value in theory, but it will make the company more accessible to smaller investors,” Colello explains. After the split, Nvidia’s fair value estimate will be adjusted to $105. The firm’s wide economic moat rating, 3-star rating (indicating the stock is fairly valued), and very high uncertainty rating will remain unchanged.
Nvidia’s AI Boom
Nvidia’s first-quarter earnings confirm it as a leader in developing generative artificial intelligence capabilities. Colello notes, “We’re encouraged by management’s commentary that demand for its upcoming Blackwell products should exceed supply into calendar 2025, and we see no signs of AI demand slowing either.”
Colello anticipates strong revenue growth from data centers over the next several quarters and expects additional growth from a higher installed base of AI equipment. He forecasts revenue of $29.7 billion in the next quarter, slightly above Nvidia’s estimate.
For now, Colello doesn’t see the demand for Nvidia’s chips waning. The company’s production is well aligned with customer demands, although he acknowledges the risk of an oversupply situation in the future. “Given Nvidia’s astronomical growth, we continue to assess the risk of companies buying too many AI GPUs too soon, leading to an air pocket and excess inventory at some point in the future. We see no such signs today,” he writes.
Why Do Companies Split Their Stock?
A stock split divides each share into multiple new shares, increasing the number of outstanding shares without changing the company’s overall value (market capitalization). Companies often do this when their share price has risen significantly, making individual shares more affordable and attractive to investors. More shares at a lower price can improve liquidity and have a psychological appeal, even though the company’s underlying value remains unchanged.
Other Recent Stock Splits
Nvidia isn’t the only major company to split its shares recently. Retail giant Walmart (WMT) enacted a 3-for-1 split in February, while Alphabet (GOOGL/GOOG), Tesla (TSLA), and Amazon (AMZN) split their shares in 2022.
